Major Events of Last Week
The event that dominated last week’s proceedings was, without doubt, Donald Trump’s stunning and surprising victory in the US presidential election. As a direct consequence, the Republican Party succeeded in retaining control of both major chambers of Congress. These developments helped initiate a boost in post-election trader sentiment which underpinned fresh strength in global equities and the US Dollar. This positivity arose despite markets voicing concerns about Trump’s unpredictability. Although stock prices plummeted dramatically throughout the election night, a significant recovery resumed as soon as it became evident that a Trump win was a reality. In fact, US equities surged to record levels while the US Dollar strengthened across the board against a basketful of other major currencies. The leading US indices produced mixed reactions last Friday typified by the Dow Jones Industrial Average climbing 41 points; the S&P500 dropping 2 points and the NASDAQ rising by 29 points.
The improvement in trader sentiment following the unexpected US election result was primarily generated by the markets starting to focus on the potential benefits of Trump’s economic strategies as opposed to the numerous uncertainties associated with his temperament. For example, Trump’s support of financial deregulation, infrastructure investment, US manufacturing growth and corporate tax cuts can be assessed as instant market positives for the US Dollar and US equities. In addition, growing conjecture that Trump will bolster fiscal stimulus and spending could also cause inflation to climb leading to higher interest rates which could boost global equity prices and the greenback even further.
Improving market stability and prospects could now convince the US Federal Reserve to hike interest rates in December, as widely anticipated. Specifically, with the world currently digesting a Trump win and election risks finally eliminated; the Fed now has the ideal environment to take a positive step by instigating new monetary tightening policies. A number of prominent Fed committee members voiced their support for this point of view last week by stating that an imminent rate hike was now a distinct possibility although stressing that interest rates should still remain low for a prolonged period of time. Nevertheless, with the Trump presidency commencing in January, increasing inflation would exert pressure on this ‘lower-for-longer’ stance. Although Trump is now enjoying a honeymoon with the markets, some of his economic policies still possess the potential to severely derail equity gains as well as generating major obstacles for both the strength of the US Dollar and global stocks. Specifically, Trump’s support for infrastructure investment and significant tax cuts would exacerbate the US national debt and suppress US economic growth.
What to Expect This Week
Mario Draghi, the President of the European Central Bank (ECB), is scheduled to deliver an important speech on Monday. Investors will be keen to learn if he will discuss any new monetary policies which could help boost the faltering economic recovery of the Eurozone. Later, the Reserve Bank of Australia (RBA) will present the minutes from its latest monetary policy meeting. This document could provide vital insights into how the RBA currently assesses the strength of the Australian economy.
On Tuesday, the United Kingdom will disclose key inflationary data. Consumer Price Index (CPI) for October is expected to register an improvement by climbing from its previous 1.0% to 1.1% this time around. The Eurozone will then reveal its Gross Domestic Product (GDP) for the third quarter of 2016. The euro could come under pressure if GDP misses its target of 0.3% on a quarterly basis. Next, the USA will post its Retail Sales for last month which should hover about its 0.6% mark.
No global events or data releases will occur on Wednesday.
On Thursday, the ECB will release its Monetary Policy Meeting Accounts. This important document could expose how the ECB currently evaluates the economic state of Europe; deliver strategies on how it intends to deal with Brexit and introduce any new stimulus strategies.
Mario Draghi will make another important speech on Friday. He is expected to provide clarification on when precisely the ECB intends to terminate its extensive bond buying program.