Trump trade drives pound down to four-month low against the dollar
Donald Trump’s election victory last week is continuing to shift the markets.
The pound has dropped to its lowest level against the US dollar since early July this morning, down half a cent to $1.2653.
On election day, sterling was worth $1.30, but it has been sliding since as traders have anticipated that Trump’s tax cuts and tariffs will be inflationary, meaning US interest rates stay higher.
The euro has dropped to a one-year low, at €1.0524 against the US dollar.
These latest losses came as the Republicans secured a majority in the US House of Representatives, which could give Donald Trump sweeping power to enact his legislative agenda.
Kathleen Brooks, research director at XTB, fears the pound could head lower….
President Trump’s clean sweep at last week’s election has been confirmed with the Republicans winning the House. This was expected; however, it gave the dollar a boost overnight, and GBP/USD sunk below $1.27.
If we don’t see a stabilization in the pound, then it opens the door to a further decline to $1.25. There were some concerns that winning the trifecta of elections could give President elect Trump concentrated power, however, his choice of John Thune for Senate majority leader is interesting – he has clashed with Trump before and was not Elon Musk’s choice for the role.
This suggests two things: firstly, that the Trump administration could surprise us. Secondly, that although Republicans now control the main organs of power in the US, the President elect may not get his way on all matters. The question is whether this appointment will halt the Trump trade, stocks are pointing to a lower open in the US, although the dollar remains upbeat.
Stephen Innes, managing partner at SPI Asset Management, predicts a “full-blown dollar tsunami’ once Trump is back in the White House:
Investors are caught in a whirlwind of global uncertainty and trade anxieties. With Trump’s anticipated tariffs looming like storm clouds, those markets in the line of tariff fire are bracing for impact.
I hope you’re not underestimating what’s brewing because Trump’s trade and domestic agenda is setting up a US dollar moonshot like we’ve never seen. This week’s price action? Just a tremor before the full-blown dollar tsunami that’s bound to hit with Trump’s second term.
Key events
£100m economic regeneration boost for Grangemouth and Falkirk
Severin Carrell
The UK and Scottish governments are to pump £100m into new energy and economic regeneration projects around the closure-hit Grangemouth oil refinery and the neighbouring town of Falkirk.
The deal, which is being signed in Falkirk by Scottish and UK ministers today, includes a new “carbon utilisation” centre to reuse waste CO2, and a bioeconomy accelerator pilot project for the whisky and food sectors at Grangemouth, where Petro-Ineos plans to close down Scotland’s last oil refinery in June 2025.
Its closure, which will lead to more than 400 direct job losses and hit several thousand people in the wider economy, is the most serious immediate challenge to the UK government’s green jobs and energy transition agenda in Scotland, where the oil industry is a powerful force.
Highly skilled workers may emigrate, as most face significant uncertainty. There are proposals for carbon capture pilots, and sustainable aviation fuel and hydrogen production projects there but widespread scepticism about their likely success.
The Scottish and UK governments are co-investing £80m in the overall growth deal and £20m on new energy projects at Grangemouth; Falkirk council and Scottish Canals are spending a further £49m.
Forth Valley college will receive funding for a skills transition centre, while money will also be ploughed into regenerating brownfield sites in Grangemouth, new transport hubs and upgrading of the Forth and Clyde canal and its workshops, and an arts park alongside it.
Kate Forbes, Scotland’s deputy first minister, said:
“The growth deal will support the region to grasp the opportunities of the transition to net zero and remain at the forefront of innovation and manufacturing in Scotland, complemented by a community-led programme of projects in Grangemouth.”
Today’s results from Disney show that CEO Bob Iger’s “quality-over-quantity approach” is paying off, says Adam Vettese, analyst at investment platform eToro:
A particular bright spot was the company’s entertainment segment, which enjoyed double-digit growth in revenue and a big bounce in operating income, in part thanks to strong box office results over the summer from such global hits as ‘Inside Out 2’ and ‘Deadpool & Wolverine’.
“Disney’s streaming business as a whole turned a profit for the first time ever in the previous quarter and the company has seen profits continue to climb in this area, which is quite the turnaround – just a year ago, the streaming business was bleeding hundreds of millions of dollars per quarter, but now it is making hundreds of millions instead. At this stage, Disney is deep into its shift in focus from linear media networks towards streaming, so a reported 6% decline in revenue from traditional networks is no great cause for consternation, though an accompanying plunge in operating income, including a more than 50% drop for its international linear networks, may still give investors pause.
“There was a small rise in profit at its experiences segment, which includes Disney’s famous theme parks, with healthy growth in domestic income offset by sharp falls in profitability at its various international parks. Forward guidance for the overall company was encouraging, predicting ‘high-single digit adjusted EPS growth compared to fiscal 2024’ and a $3 billion buyback plan. As a whole, it’s an upbeat earnings report and shares in Disney rose more than 9% in pre-market trading.”
Over in the US, the number of Americans filing new claims for unemployment support has fallen.
In a sign that Joe Biden is handing a solid labor market onto Donald Trump, there were 217,000 fresh ‘initial claims’ for jobless support last week. That’s down from 221,000 the previous week.
BoE’s Mann: Economic uncertainty is reason to leave rates on hold
Bank of England policymaker Catherine Mann is warning that the UK economy is likely to face elevated “macroeconomic volatility” in the next few years.
In a speech to the Annual Conference of the Society of Professional Economists in London this lunchtime, Mann is examining the last forty years of the ‘Great Moderation’, which brought low inflation and macroeconomic stability.
Mann points out that experts disagree on whether good policy or good luck was the prime cause of the Great Moderation (while central bankers tend to believe policy was responsible)
One risk that could help unwind the Great Moderation is climate change, she points out, saying:
The introduction of various uncoordinated climate mitigation policies may introduce volatility. Price-based instruments such as carbon taxes create volatility in output, and quantity-based instruments such as an ETS create price volatility. In addition, there is added uncertainty about future changes to policy stringency that may further accentuate macroeconomic volatility.
A second risk is global trade fragmentation, as shocks can be transmitted to the UK via the exchange rate, imports and exports, as well as financial markets.
Mann points out that uncertainty about trade policy in itself may have damaging economic effects and increase volatility, adding:
The latest political developments across the Atlantic have not made a disorderly trade scenario less likely, which would have consequences for output and inflation in the UK.
Financial Market volatility and policy-induced volatility and spillovers are also potential threats, she adds.
Mann – who opposed last week’s cut to UK interest rates – concludes that these risks, and uncertainty about the economic outlook, are a reason to leave borrowing costs on hold:
In the face of uncertainties about the outlook for inflation and output, waiting buys time to learn more about developments, to make a better assessment of whether the inflation risk has subsided sufficiently to justify changing the policy stance. In the current context, an activist stance holds the policy rate firmly until sufficient evidence on diminished inflation persistence is revealed; and then to move forcefully.
Disney’s Experiences division, which includes its theme parks, resorts and cruise ships, has achieved record revenue and operating income for the last year.
In today’s results, the company says:
In Q4, Experiences revenue increased $0.1bn, or 1%, and operating income of $1.7bn was a decline of $0.1bn, or 6% compared to the prior-year quarter.
Domestic Parks & Experiences operating income increased in Q4, on comparable attendance to the prior-year quarter, driven by higher guest spending, partially offset by higher expenses and costs related to new guest offerings driven by Disney Cruise Line. International Parks & Experiences operating income declined in Q4.
Inside Out 2 and Deadpool & Wolverine drive earnings at Disney
The sucess of this summer’s films Inside Out 2 and Deadpool & Wolverine have helped Walt Disney to forecast-beating results today.
Disney has grown its adjusted per-share earnings to $1.14 for the July-September quarter, up from $0.82 a year earlier, and ahead of forecasts of $1.10 per share.
Revenues increased by 6% in the quarter, although pre-tax income dipped by 6%.
Disney’s Content Sales/Licensing and Other revenues rose by 39% in the quarter.
Disney says:
Pixar’s Inside Out 2 and Marvel’s Deadpool & Wolverine broke numerous box office records and helped drive $316m in operating income at Content Sales/Licensing and Other in Q4.
It also increased its Disney+ Core paid subscriber base by 4.4 million during the quarter, to more than 120 million.
Disney has also forecast it will achieve “high single-digit” growth in adjusted earnings per share (EPS) in the next financial year, rising to “double digit adjusted EPS growth” in the 2026 and 2027 fiscal years.
CEO Bob Iger says:
This was a pivotal and successful year for The Walt Disney Company, and thanks to the significant progress we’ve made, we have emerged from a period of considerable challenges and disruption well positioned for growth and optimistic about our future.
The dollar is trading at its highest level against a basket of currencies in over a year.
The dollar index is up 0.4% today, to its highest since the start of November 2023, extending the rally which began after the US election.
Shares in gold producer Resolute Mining have been suspended at the company’s request, amid a tax row that has seen the company’s CEO detained in Mali.
Resolute told shareholders that a temporary halt on trading its shares on the Australian Stock Exchange has begun, and that the company will provide further updates “as and when appropriate”.
Its chief executive, Terry Holohan, and two other Resolute employees were detained in Bamako, Mali’s capital, last Friday, after attending a meeting to discuss a demand to repay back taxes and a renegotiation of terms over its Syama gold mine.
Bloomberg reports that Mali are demandng Resolute pay about $160m to resolve the tax dispute.
Gold is on track for its fifth daily fall in a row.
The spot gold price is down 1% today, to $2,547 per ounce. At the end of last month, it hit a record of $2,790 per ounce, but has been dipping through November.
George Saravelos, of Deutsche Bank Research, says this fall has “confounded expectations”, and cites three messages we can take from it:
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This market is NOT worried about US credit risk. If the market was becoming concerned about excessive fiscal deficits, fiscal dominance and a loss of central bank independence in the US gold would be the first thing that would be going up. This is of course also reflected in the very muted moves in US term premia and inflation break-evens so far. We see gold price action as confirming the argument we have been making throughout the year that the US is not at risk of a twin deficit currency crisis any time soon.
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Demand for gold reserves from central banks is going down. The reasoning here is simple: Trump policy is likely to put weakening pressure on many emerging market currencies most notably CNY. By extension, many central banks now need to spend dollar reserves to defend their FX from capital outflows and prevent excessive weakening. We have been showing that Asian central banks have been diversifying their holdings in to gold. They now have to spend more of these dollars defending their currencies instead.
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The USD remains the pre-eminent safe-haven currency of choice. Some have been arguing that the dollar’s appeal is in structural decline, with the weaponization of sanctions and trade a key driver. In contrast, our view has been the opposite: while public sector demand for dollar assets might be dropping, private sector demand has been rising and matters much more: the greater the risk a government gets sanctioned by the US, the bigger the net demand for dollars. Price action since the US election victory is therefore not only consistent with a rising risky asset demand for US assets (US over global equities) but safe-haven demand too (dollar up against all global FX and gold).
Ukrainian government bonds are rallying again this morning, on anticipation that Donald Trump’s return to the White House could end its war with Russia.
Reuters has the details:
Longer-dated maturities saw the biggest gains, with 2035 paper rising 2.6 cents to be bid at 56.73 cents, its highest. since the bonds were launched in early September as part of the country’s debt restructuring, Tradeweb data showed.
Trump has pledged a quick end to the Russia-Ukraine war once he takes office in January, but he has yet to share details on how he would achieve it.
UK mortgage rates rise
Bad news for those looking to buy a house in the UK: mortgage rates are moving up again.
Moneyfacts has reported that the average fixed-term mortgage rates have risen this morning, even though the Bank of England cut interest rates last week.
They report:
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The average 2-year fixed residential mortgage rate today is 5.48%. This is up from 5.44% the previous working day.
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The average 5-year fixed residential mortgage rate today is 5.21%. This is up from 5.17% the previous working day.
Several banks have raised their mortgage rates in recent days, such as Santander, TSB, HSBC, Virgin Money and Nationwide Building Society.
This follows a pick-up in the yields (rate of return) on UK short-term government bonds since the budget. They are used to price mortgage rates, and have risen as traders have anticipated higher borrowing.
Statistics body Eurostat has reported that the eurozone economy grew by 0.4% iin the third quarter of this year, matching its initial ‘flash’ estimate.
That means growth accelerated in July-September, up from 0.2% in April-June.
Ireland’s GDP grew by 2%, while Spain and the Netherlands both expanded by 0.8%. France’s GDP rose by 0.4%, while Germany lagged behind with 0.2% growth.
Eurostat also reports that employment in the eurozone rose by 0.2% in the last quarter.
Trump trade drives pound down to four-month low against the dollar
Donald Trump’s election victory last week is continuing to shift the markets.
The pound has dropped to its lowest level against the US dollar since early July this morning, down half a cent to $1.2653.
On election day, sterling was worth $1.30, but it has been sliding since as traders have anticipated that Trump’s tax cuts and tariffs will be inflationary, meaning US interest rates stay higher.
The euro has dropped to a one-year low, at €1.0524 against the US dollar.
These latest losses came as the Republicans secured a majority in the US House of Representatives, which could give Donald Trump sweeping power to enact his legislative agenda.
Kathleen Brooks, research director at XTB, fears the pound could head lower….
President Trump’s clean sweep at last week’s election has been confirmed with the Republicans winning the House. This was expected; however, it gave the dollar a boost overnight, and GBP/USD sunk below $1.27.
If we don’t see a stabilization in the pound, then it opens the door to a further decline to $1.25. There were some concerns that winning the trifecta of elections could give President elect Trump concentrated power, however, his choice of John Thune for Senate majority leader is interesting – he has clashed with Trump before and was not Elon Musk’s choice for the role.
This suggests two things: firstly, that the Trump administration could surprise us. Secondly, that although Republicans now control the main organs of power in the US, the President elect may not get his way on all matters. The question is whether this appointment will halt the Trump trade, stocks are pointing to a lower open in the US, although the dollar remains upbeat.
Stephen Innes, managing partner at SPI Asset Management, predicts a “full-blown dollar tsunami’ once Trump is back in the White House:
Investors are caught in a whirlwind of global uncertainty and trade anxieties. With Trump’s anticipated tariffs looming like storm clouds, those markets in the line of tariff fire are bracing for impact.
I hope you’re not underestimating what’s brewing because Trump’s trade and domestic agenda is setting up a US dollar moonshot like we’ve never seen. This week’s price action? Just a tremor before the full-blown dollar tsunami that’s bound to hit with Trump’s second term.
IEA: Oil market to be in surplus in 2025
In other energy news, the International Energy Agency has predicted that the oil market will run a surplus next year.
In its latest monthly report, the IEA says that concerns about the health of the global economy have hit the oil price in recent weeks, with Chinese demand contracting for a sixth straight month in September.
It predicts that the oil market will be “well-supplied” in 2025; the IEA estimates that oil consumption will rise by 990,000 barrels per day next year, while non-OPEC+ supply is expected to grow by 1.5m barrels per day in 2025.
As a result, even if the Opec+ group continues to postpone its planned production increase, the IEA reckons supply will outpace demand.
It says:
Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 mb/d next year.
With supply risks omnipresent, a looser balance would provide some much-needed stability to a market upended by the Covid pandemic, Russia’s full-scale invasion of Ukraine and, most recently, heightened unrest in the Middle East.
UK and European gas prices at one-year high
UK and European gas prices have risen to their highest levels in a year.
The European gas benchmark has risen by 4.5% this morning to €45.65 per megawatt hour, the highest since November 2023.
The price of next-day gas in the UK is also trading at its highest since last November, up 4% to 115p per therm.
The increase comes as colder weather in Europe drive up demand for heating. Low wind speeds have also caused a “dunkelflaute” in the region, meaning less power could be generated by wind farms.
A drop in supplies from Russia is also a factor.
Bloomberg is reporting that Russia’s Arctic LNG 2 project has slashed output at its gas fields to nearly zero so far this month, due to western sanctions.
And….Germany has warned its state-operated gas import terminals to reject any Russian cargoes of liquefied natural gas, after it was notified of a planned shipment, the Financial Times reports this morning.
According to the FT, the German economy ministry has instructed Deutsche Energy Terminal “not to accept any deliveries of Russian LNG”.
A third possible factor is that Austrian oil and gas group OMV has been awarded €230m by the International Chamber of Commerce (ICC) over irregular German gas supplies from Russia’s Gazprom.
OMV plans to offset the claim against its bills to Gazprom Export to obtain its compensation, but there are concerns that Gazprom could potentially stop supplies to Austria in response.
Austrian energy minister Leonore Gewessler wrote in a post on X yesterday:
The current developments surrounding the OMV supply contract for Russian gas are to be taken seriously, but do not pose an immediate threat to our security of supply. We have always known that gas supplies from Russia are unsafe.
“We have been preparing for a possible supply disruption for a long time. In any case, our country’s gas supply is secure. Our gas storage facilities are full.”
