Economic Focus Turns Back to Inflation as Markets Try to Extend Their Trump Election Rally
After Republicans secured control of Washington and the stock market rallied, economic attention turns back to inflation. Reports on the Consumer Price Index (CPI) and Producer Price Index (PPI) this week are expected to show slight increases in annual rates, with CPI projected to rise from 2.4% and PPI from 1.8% to 2.3%. These trends remain within the Federal Reserve’s 2% target but signal potential challenges ahead.
Concerns are mounting over President-elect Donald Trump’s proposed policies, which could drive inflation higher. His plans include deporting millions of immigrants, extending expiring tax cuts, and imposing tariffs on imports, likely raising consumer prices. Trump has moved swiftly to nominate key figures, including Tom Homan as border czar, and is considering investors Scott Bessent and John Paulson for Treasury Secretary, signaling a market-friendly approach.
Retail sales data on Friday will also provide insights into consumer spending and holiday season expectations. Economists anticipate a 0.3% growth in October, slightly below September’s 0.4%, reflecting steady but cautious economic activity
Wall Street indexes dip with focus on Trump policies, economic data
Wall Street's major indexes fell on Tuesday as investors took profits after a post-election rally and braced for inflation data later this week. Concerns over inflationary pressures from President-elect Donald Trump’s proposed policies, including tariffs and tax cuts, dampened market enthusiasm.
The Dow dropped 382 points (0.86%), the S&P 500 fell 0.29%, and the Nasdaq declined 0.09%. Healthcare and materials sectors led the losses, while communication services posted gains. Rising Treasury yields and global market declines added pressure. Investors remain focused on upcoming consumer and producer price inflation reports, which could impact Federal Reserve policy.
Meanwhile, Tesla saw a 6% drop after a sharp postelection rally, while biotech firm Novavax declined 6% following lower-than-expected vaccine sales. Honeywell surged to a record high, boosted by ElliottInvestment’s$5billionstake.FederalReserve officials noted that monetary policy remains modestly restrictive but could shift if inflation pressures escalate.
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Photo: Shawn Thew
Republicans inch closer to US House majority, full control of Congress
Republicans moved closer to securing a House majority on Tuesday, projected to have 216 seats, just two short of the 218 needed for control, while Democrats hold207seats with12 racesuncalled. With a Republican majority in the Senate already established, at least 52 seats are confirmed. However, without the 60-vote threshold in the Senate, Democrats retain some legislative influence.
Control of the House would empower Republicans to pursue an agenda focused on tax cuts, energy deregulation, and stricter border controls. Remaining undecided races are primarily in competitive Western districts, where vote counting progresses slowly. Additionally, Senate Republicans are preparing for leadership elections, with John Thune, John Cornyn, andRickScott competingtoreplaceMitchMcConnell as party leader.
If Republicans gain full control of Congress, it will give President-elect Donald Trump a significant advantage in advancing his policy goals when he begins his new term in January. Analysts suggest this could lead to significant changes in federal tax and spending priorities, alongside heightened debates over border security and energy policy.
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The Average Rate on a 30-Year Mortgage in the US Slips to 6.78%
This week, theaveragerateona30-yearmortgagein the U.S. edged lower to 6.78%, ending a six-week climb. While the rate remained slightly lower than the previous week's 6.79%, it is still a significant drop from the 7.4% rate seen last year. Meanwhile, the 15year fixed-rate mortgage rate fell to 5.99% from 6% in the previous week.
These mortgage rates are influenced by U.S. 10-year Treasury bond yields, which have risen due to optimistic inflation and economic reports, partly spurred by expectations that President-elect Trump’s policies could drive faster economic growth and inflation, leading to higher government debt. Despite these fluctuations, mortgage rates remain lower than their peak of 7.22% earlier this year, and forecasts predict they will stabilize around 6% by 2025. However, the U.S. housing market continues to experience challenges, with high mortgage rates and elevated home prices contributing to a prolonged sales slump since 2022.
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Traders chase post-election stock gains in US options market
After the U.S. election on November 5, options traders have shifted to a more bullish stance, driving a 3% rally in the S&P 500. This change follows the fading of election-related risks and expectations of Republican control, which could lead to tax cuts and deregulation. The volume of call options, especially in sectors like Tesla, small-cap stocks, and regional banks, has surged, with Tesla options accounting for 30% of total U.S. stock options traded on one day.
While optimism is high, some caution remains, as investors are wary of potential inflation from Trump’s policies. Despite the rally, investor enthusiasm is not at euphoric levels, suggesting a cautious optimism as the effects of the Republican agenda unfold.
TheshiftfromdefensivetobullishpositioninghasledtoadropintheCboeVolatilityIndex,reflectingreduced market concerns. However, analysts caution that the rally could face challenges as the implementation of the Republican economic agenda becomes clearer. While the outlook is positive in the short term, uncertainties around tax cuts, tariffs, and their potential inflationary effects could pose risks to continued marketgrowth.Despitethis,theoverallmarketsentimentremainsoptimistic,withtraderseagertocapitalize on potential gains in the wake of the election results
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https://www.reuters.com/markets/us/traders-chase-post-election-stock-gains-us-options-market-2024-11-15/