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Harry Brassington, of Team Asset Management, offers this week’s market review
THE main American equity index has now given up just over half the gains it made in the post-election Trump euphoria. However, attention is now shifting to who will be appointed to the new administration and how the path of interest rates and inflation will look over the medium term.
Controversial is a word never far from headlines when talking about Donald Trump, and recent headlines are no different, with several members of Trump’s cabinet facing heavy scrutiny.
Notably, is Trump’s pick for Health and Human Services, Robert F Kennedy Jr, likely to be approved by the Senate? The news of this choice sent vaccine makers and health companies tumbling on Friday, with major falls from Covid-19 vaccine makers Moderna and Pfizer, along with European companies GlaxoSmithKline and BioNTech. RFK Jr, the nephew of JFK, is a renowned anti-vaxxer and has campaigned to crack down on “Big Pharma”.
Kennedy has insisted he is not anti-vaccine but has made comments in the past around vaccines being linked to autism in children and furthermore called the Covid-19 vaccine the “deadliest vaccine ever made”.
Along with this controversial pick are the nominees for Secretary of Defence, who has denied a sexual assault allegation, and for Attorney General, who is at the centre of an ethics investigation. All these appointments need to be ratified by the Republican-controlled US Senate, although there will be intense scrutiny applied during the process to ratify these appointments.
Turning to the pointers on growth, inflation and the path of interest rates, Jerome Powell, chair of the Federal Reserve, has remarked on the recent US robust economic performance, giving his fellow policy makers room to lower rates at a gentler pace.
Following the aggressive September cut of half a per cent and last week’s quarter-point reduction, the Fed has signalled a willingness to cut further on the proviso that inflation remains in check. Powell has noted that unless the economy signals otherwise, they will be in no hurry to lower rates, cooling bets of a December cut.
Over this side of the pond, we eagerly look to this week’s inflation data in Europe and the UK to gauge the outlook for interest rates. The European government looks worried about the threat of Trumps tariffs, in particular German automakers facing tariffs on their vehicles. The latest forecast from the European Commission predicts the economy will shrink this year. All told, long shadows are being cast over the snap February 2025 German election following the collapse of the coalition government.
Prospects for UK growth were also dented following Friday’s numbers from the Office of National Statistics. The poor reading showed that the UK economy came to a standstill for the quarter. A combination of high interest rates and uncertainty around Labour’s first budget has weighed heavily on business and consumer spending. The timing could not have been worse for the Chancellor as she looks to push the UK up the G7 growth rankings. All eyes are on the December Bank of England meeting where the governor has said rates are likely to continue to fall, but has urged caution they could not be cut too quickly or by too much. The uncertainty around the budget means there is a looming threat of a spike in inflation from the spending pledges.
During times of such uncertainty, investors often flock to what are called haven assets such as gold, which is already up over 30% year to date. Central Bank buying seems set to continue as Goldman Sachs predicts further progress into next year with a target of $3,000 compared with the current $2,620.
Elsewhere, the crypto market continues to soar, attracting net inflows of $33.5 billion year to date coinciding with the recent rally which has seen the Bitcoin reach $93,477.
To add some perspective to this, the first known Bitcoin transaction was on 22 May 2010, now known as Bitcoin Pizza Day, when a man purchased two pizzas for 10,000 Bitcoin, a value equating to $41. Today that transaction would amount to $918,882,600.
