ING: Trump trade war could push the eurozone economy into recession.
A looming new trade war triggered by Donald Trump could push the eurozone economy from sluggish growth into “a full-blown recession”.
That’s the view of the investment bank ING, which fears the recession could begin even before Trump – who has said he wants to impose a 10% tariff on all non-US goods – is sworn in next January.
ING says:
The already struggling German economy, which heavily relies on trade with the US, would be particularly hard hit by tariffs on European automotives. Additionally, uncertainty about Trump’s stance on Ukraine and NATO could undermine the recently stabilised economic confidence indicators across the eurozone.
Even though tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.
ING also predicts that the European Central Bank will need to do the “heavy lifting” of protecting Europe’s economy by cutting rates, while politicians wait to see what policies Trump actually implements.
It explains:
With these election results, a 50bp rate cut at the ECB’s December meeting has become more probable, with expectations of the deposit rate dropping to at least 1.75% by early summer, possibly followed by further easing towards the end of 2025.
Even though Trump’s tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.https://t.co/mPyiauahuO
— ING Economics (@ING_Economics) November 6, 2024
Key events
UK house prices hit record high in October
Jack Simpson
The average price of a home in the UK is at a record high but demand could slow as a result of policies in Rachel Reeves’s budget, Britain’s biggest mortgage lender has said.
Halifax’s monthly house price index found that the cost of the average home hit £293,999 in October, the highest ever recorded, outstripping the £293,507 reached in June 2022.
The 0.2% rise in October is the fourth consecutive month of growth, and brought the annual growth rateto 3.9%, from 4.6% in September.
Against the cost of living and rate odds; UK Avg house prices increase 0.2% in October to £293,999 beating the previous peak set in June 2022 of £293,507. The increase in growth was again led by Northern Ireland and Scotland, the South trailing behind @HalifaxBank pic.twitter.com/eLLZtalkA6
— Emma Fildes (@emmafildes) November 7, 2024
The figures suggest homebuyers shrugged off concerns about what would be contained in the chancellor’s debut budget, delivered at the end of October. However, Halifax said measures included in the speech could affect future demand.
Ukraine’s sovereign dollar bonds are rallying for the second day, up over 2%, as investors wager that Donald Trump’s return to the White House could end the country’s war with Russia.
Reuters has the details:
Longer-dated maturities saw the biggest gains, with the 2035 paper rising by more than 2 cents to nearly 50 cents on the dollar, its highest since the bonds were launched in early September as part of the country’s restructuring.
The country’s GDP warrant – a growth linked fixed income instrument that is still earmarked for restructuring – added 2.6 cents to bid at 76.4 cents, the highest since Russia’s invasion in February 2022, Tradweb data shows.
Trump once boasted he could end the decade-long Russo-Ukrainian war in “24 hours”, and his second presidency could be difficult for Ukraine, at a time when Russia is advancing on the battlefield at the quickest rate since 2022.
Analysts at RBC Capital Markets predict the Bank of England will be split on today’s interest rate decision, with a majority voting for a cut.
RBC explain:
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We expect the Bank of England (BoE) to recommence its cutting cycle at its November meeting and look for the MPC to deliver a 25bp cut in Bank Rate to take it to 4.75%.
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Our best judgement is that the Committee will vote 6-3 split in favour of cutting Bank Rate.
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The Autumn Budget has provided the MPC with perhaps more to think about, particularly as regards the near-term outlook, than was anticipated in advance.
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The plans set out by the Chancellor this week slow the pace of deficit reduction compared to those from March, which the August MPR forecasts was conditioned on, and would be expected to impact the Bank’s near-term forecasts for growth and inflation which will be released alongside the meeting.
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We don’t think the MPC will necessarily adjust its language in the policy statement in response to recent events; key on the day instead will be how the Governor chooses to discuss the impact of the Budget and steer expectations for forthcoming meetings.
Goldman Sachs have cautioned that a trade war could threaten growth in the US stock market.
In a research note on the US election, Goldman say they are sticking with their S&P 500 target of 6,300 points in 12 months time – a 9% gain.
They tell clients:
Robust earnings growth should drive continued equity market appreciation into next year. We forecast EPS growth of 11% in 2025 and 7% in 2026, although those estimates may change as the new administration’s policy agenda comes into clarity.
The prospect of trade conflict poses downside risk to these estimates, while the potential for changing regulatory and corporate tax policy pose upside risks.
After losing ground yesterday, European stock markets are rallying today, despite the political crisis in Germany and worries of a looming trade war with America.
In Berlin the DAX index has risen by 1.25%. Carmakers are recovering some of yesterday’s losses, with BMW up 2.5%.
The pan-European Stoxx 600 is up 0.5%, led by banking stocks – as investors anticipate that interest rates will be higher than previously expected.
Rate cut in Sweden, but Norway holds tight
There’s drama in the central bank world already this morning!
In Stockholm, the Riksbank has cut Swedish interest rates by half a percentage point, down from 3.25% to 2.75%.
The Riksbank explains that there are “still few clear signs of a recovery”, so it has slashed borrowing costs to support economic activity. It says that if the outlook for economic activity and inflation remains the same, the policy rate may also be cut in December and during the first half of 2025.
The Riksbank adds that it is hard to assess economic developments at present, partly due to the US election, explaining:
There are risks linked to the geopolitical tensions, the economic policy abroad, the krona exchange rate and economic activity in Sweden that can affect the outlook for economic activity and inflation and lead to a different monetary policy stance.
Norway’s central bank has just voted to leave interest rates on hold, though, at 4.5%.
A rate cut in December is not likely either, with Norges Bank governor Ida Wolden Bache saying:
The policy rate will most likely be kept at 4.5 percent to the end of 2024.
After a rollicking surge yesterday, the US dollar is weakening a little this morning.
The dollar is down 0.3% against a basket of other major currencies, while the pound has gained half a cent (-0.35%) to $1.293.
The euro, which tumbled by 1.8% yesterday, has nudged up by 0.35% today to $1.0765, despite the fears of a eurozone recession.
Supermarket chain Sainsbury’s want the UK government to listen to the concerns of British farmers over last week’s budget.
Farmers are very unhappy that Rachel Reeves has cut the inheritance tax relief on agricultural assets.
Some are threatening to go on strike to disrupt food supplies in protest at the plan, under which assets worth more than £1m, which were previously exempt, will be liable to IHT at 20%, half the usual rate.
The government argues that just 28% of farmers will be affected by the new inheritance tax rules, but that is disputed by the farmers’ union.
CEO Simon Roberts also revealed that the increase in national insurance rates for employers in last week’s budget will add £140m to its costs.
Sainsbury’s boss Simon Roberts says Budget NICs increase will add £140M of costs and will lead to inflation because retailers can’t absorb “unexpected barrage of costs”.
Disappointed nothing done on biz rates, due to rise next year too, and calls for govt to listen to farmers— Ashley Armstrong (@AArmstrong_says) November 7, 2024
Roberts was speaking after Sainsbury’s reported a 4.6% increase in sales, excluding fuel, in the 28 weeks to 14 September 2024. It says growth in food volume sales was “ahead of the market”, helping to lift pre-tax profits by 4.7% to £356m.
Mark Haefele, chief investment officer at UBS Global Wealth Management, predicts more market turbulence as Donald Trump’s policy proposals take shape:
Markets have started to digest Trump’s victory, with the initial response pointing to expectations of stronger growth, higher inflation, a slower pace of interest rate cuts, and trade tariffs.
As more detailed policy proposals emerge from the Trump transition team, investors should brace for further swings ahead. We advise investors to be ready to use any outsized market reactions to build stronger long-term portfolios.
Bloomberg: Trump win sparks record $64bn gain for world’s 10 richest people
The fortunes of the ten richest people in the world surged by a daily record yesterday after Donald Trump won a second term as president.
Bloomberg, who have crunched the numbers, explains:
The net worth of billionaires led by Tesla’s Elon Musk, the world’s wealthiest person, surged by $63.5 billion on Wednesday, according to the Bloomberg Billionaires Index.
Musk alone added $26.5 billion to his pot. Amazon.com’s Jeff Bezos and Oracle’s Larry Ellison were also among the top gainers. It’s the biggest daily increase since Bloomberg’s wealth index began in 2012.
Much of the gains for the ultra-rich come down to a surge in US stocks, underscoring bets that Trump, on his return to the White House, will implement an agenda favoring lower taxes and less regulation. The S&P 500 jumped 2.5% in the best post-election performance in history, while the US dollar also gained.
The net worths of the world’s 10 richest people have already surged $64 billion since Trump’s election, according to Bloomberg.
Musk alone saw his fortune jump $26.5B.
It’s also worth noting how many of these have ties to tech companies. pic.twitter.com/jc3nba4LQZ
— Marty Swant (@martyswant) November 7, 2024
Chinese factories appear to have been trying to front-run new tariffs, by shipping more goods to major markets before they are imposed.
New data today shows that China’s exports grew at the fastest pace in over two years in October, as manufacturers responded to the threat of a two-front trade war with both the US and the EU.
China’s exports grew by 12.7% year-on-year last month, customs data showed on Thursday, beating forecasts of a 5.2% increase expected by economists.
Imports fell 2.3%.
📈 #China’s #Exports Surge Amid Looming #Tariffs
China’s export growth hit a 27-month high in October, rising 12.7% year-over-year to $309 billion, with #US exports up 8.1%, the strongest in 3 months.
We believe Chinese exporters might be front-loading shipments ahead of… pic.twitter.com/gsnEsKUDPg
— DF (@FigueiDy) November 7, 2024
Taiwan says will help firms leave China to avoid Donald Trump tariffs
Taiwan will help companies relocate production from China to avoid the threat of tariffs imposed by Donald Trump next year, its economy minister Kuo Jyh-huei said today.
Speaking in parliament, Kuo said the impact of any Trump tariffs on China for Taiwanese firms manufacturing there would be “quite large”, Reuters reports.
Kuo added:
“We will as soon as possible come up with help for Taiwan companies to move their production bases.”
Trump has threatened to impose tariffs of 60% on US imports of Chinese goods, which would threaten growth at the world’s second-largest economy.
Germany may not need Donald Trump’s help to fall into an economic mess, though.
New data this morning shows that German industrial production fell by 2.5% month-on-month in September, and was almost 5% year-on-year.
Trade across Europe’s largest member also worsened, with German exports falling 1.7% in September. Imports were up 2.1% compared with August 2024, meaning Germany’s trade surplus shrank.
ING say:
The zigzagging of German industrial data suggests that German industry has not yet entered a period of full bottoming out. In fact, industrial production in the third quarter was still some 2% down compared with the second quarter.
After some chunky swings yesterday, markets are calmer today as investors digest the consequences of the US election.
Japan’s Nikkei has dipped by 0.25% today, having surged by 2.6% on Wednesday to its highest close in three weeks.
Japanese financial stocks have risen today, on expectations that Trump’s fiscal policies will lead to higher inflation, and thus higher interest rates.
The yield (or interest rate) on Japan’s 10-year government bonds rose to 1%, for the first time in over three months.
That followed a sharp selloff in US government bonds yesterday, which pushed up US yields.
Jim Reid of Deutsche Bank explains:
That’s because the view is that higher tariffs mean that inflationary pressures will rise, and an extension of the Trump tax cuts under a Republican sweep mean the deficit will go up further in the years ahead. Plus the Fed are less likely to cut rates in this scenario.
In fact, higher inflation expectations were clear from how inflation swaps reacted, with the 2yr inflation swap surging by +18.6bps yesterday to 2.62%.
ECB’s de Guindos: Tariff threat adds to uncertainty risks
Phillip Inman
Donald Trump’s election victory and the threat of tariffs will force policymakers to be more cautious as they bring down interest rates, the European Central Bank’s vice president Luis de Guindos has said.
De Guindos said the heightened uncertainty following Trump’s recapture of the White House meant the threat of trade tariffs could be added to the uncertainty created by the war in Ukraine and the middle east conflict.
Speaking at University College London on Wednesday, he said the ECB was likely to take “small steps, short steps” in its approach to bringing down interest rates, scotching speculation of a cut in the cost of borrowing at the central bank’s next meeting by 0.5 percentage points from 3.75%.
Some analysts had speculated that the ECB would move quickly to bolster the eurozone economy ahead of threatened tariff increases on European and Chinese goods following Trump’s inaguration in January.
“Uncertainty is on the rise,” de Guindos said.
It is huge. And because of that you need to be prudent.
De Guindos, who was the first member of the ECB’s 26-strong governing council to respond to Trump’s electiion, said it will take time to assess how trade policies under Trump will affect the economy.
“If you ask me, are you going to react immediately? — No,” he said.
What we will do is we will incorporate into our projections the trade policy that is announced by the new US administration. And we will take into consideration all the elements. Trade policy, plus the evolution of demand, plus the evolution of energy prices.
But he added: “Tariffs will impact growth negatively and inflation negatively.”
In the meantime he said policymakers would continue to be guided by data and look particularly closely at its bank lending survey to determine whether firms are receiving the loans they need to boost investment.
He said bank lending was feeding through to the real economy following two cuts in interest rates by the ECB, but inflation and economic growth had slowed faster than expected.
He said it was clear from the US election that inflation had played a key role.
It’s quite clear that inflation is a tax the low income people, because it’s quite clear that they consume the large part of their incomes. And they consume the kind of items where prices have been rising the most.
And even though you know it’s clear that the inflation rate is declining, households and consumers, look at prices that are 20% or 30% higher than two years ago.
Eurozone growth forecasts cut due to tariff threat
Investors and economists are bracing for further economic pain in Europe from a second Donald Trump presidency that could lead to hefty tariffs on European exports into the US.
Berenberg bank is warning this morning that Trump’s return to the White House implies “considerable trade policy risks and geopolitical uncertainty” for European businesses.
Germany – where the government has collapsed following the unexpectedly sacking of the finance minister yesterday – is particularly exposed.
Holger Schmieding, Berenberg’s chief economist, says:
We assume that Trump will initially impose only selective but headline-grabbing tariffs, while threatening to go much further if China and Europe do not offer him significant concessions in negotiations. That would be akin to his approach in 2017-20.
Viewed in isolation, such an escalation of trade tensions could lower 2025 growth in the Eurozone by c0.3 percentage points and in heavily exposed Germany by as much as c0.5 percentage points as uncertainty weighs on business confidence and investment.
However, the eurozone should benefit from the “temporary spillover from more US domestic demand” and a stronger US dollar, which makes euro-priced goods more competitive.
As a result, Berenberg has only trimmed its 2025 annual growth forecasts modestly. Growth in the eurozone next year has been lowered from 1.1% to 1.0%, for France from 0.8% to 0.7%, and for Italy from 0.9% to 0.8%.
Germany will likely be hit harder, with growth of just 0.3% instead of 0.5% next year, it adds.
ING: Trump trade war could push the eurozone economy into recession.
A looming new trade war triggered by Donald Trump could push the eurozone economy from sluggish growth into “a full-blown recession”.
That’s the view of the investment bank ING, which fears the recession could begin even before Trump – who has said he wants to impose a 10% tariff on all non-US goods – is sworn in next January.
ING says:
The already struggling German economy, which heavily relies on trade with the US, would be particularly hard hit by tariffs on European automotives. Additionally, uncertainty about Trump’s stance on Ukraine and NATO could undermine the recently stabilised economic confidence indicators across the eurozone.
Even though tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.
ING also predicts that the European Central Bank will need to do the “heavy lifting” of protecting Europe’s economy by cutting rates, while politicians wait to see what policies Trump actually implements.
It explains:
With these election results, a 50bp rate cut at the ECB’s December meeting has become more probable, with expectations of the deposit rate dropping to at least 1.75% by early summer, possibly followed by further easing towards the end of 2025.
Even though Trump’s tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.https://t.co/mPyiauahuO
— ING Economics (@ING_Economics) November 6, 2024
Introduction: Will UK and US cut interest rates today?
Good morning, and welcome to our rolling coverage of business, the financial markets and world economy.
After yesterday’s election drama, monetary policy makes a welcome return to the stage with interest rate decisions in the UK and US.
The Bank of England is widely expected to cut base rate today; from 5% to 4.75%.
With CPI inflation and wage growth both continuing to cool, the Bank should feel confident it can adjust its restrictive policy stance.
To make the decision, the BoE must weigh up the implications of last week’s UK budget, which lifted taxes, spending and borrowing.
But investors are confident that its Monetary Policy Committee will vote to lower rates – a quarter-point cut is a 95% probability, according to the latest money market pricing.
Ranjiv Mann, senior fixed income portfolio manager at AllianzGI, says:
In the short term, although BOE governor Andrew Bailey indicated recently that it may be too early to declare victory on the fight against inflation given some concern about the stickiness of services inflation, we think that a majority of MPC members will still favour cutting rates in November.
The BoE will also be considering the outcome of the US election, and the implications of changes to US trade policy.
As must the Federal Reserve! It is also expected to cut borrowing costs by a quarter-point, when the US cental bank’s policymakers meets today.
Donald Trump’s pro-growth policies, such as tax cuts and tariffs, are likely to lead to higher inflation in the US, which ought to leave less room for interest rate cuts.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:
The Federal Reserve is expected to announce a 25bp cut today, but the policy beyond today’s decision must be readjusted accordingly.
The expectation, so far, was that the Fed would cut today by 25bp, and deliver another 25bp cut in December, and a full point cut next year. Now, the December cut is on a slippery ground and the Fed should not consider more than 2-3 rate cuts next year. That’s – at least – the policy response that you would reasonably expect from a central bank as an economist.
The agenda
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8.30am GMT: Eurozone construction PMI report for October
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Noon GMT: Bank of England interest rate decision
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12.30pm GMT: Bank of England press conference
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1.30pm GMT: US weekly jobless claims
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7pm GMT: Federal Reserve interest rate decision
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7.30pm GMT: Federal Reserve press conference