The dollar has surged and Treasury yields have skyrocketed since last week’s election, while market odds for a rate cut at the Federal Reserves (Fed)’s next meeting in December have been whittled down to just 62% from 77% a week earlier and 84% a month ago, according to CME Group.
Today brings potentially crucial US CPI data that could either bolster or reverse that trend in rate cut expectations and kicks off a busy few days that include US producer inflation readings and comments from Fed chair Jay Powell tomorrow, followed by retail sales figures on Friday.
Powell last week pledged to stay the course on careful, patient monetary easing, saying the central bank wouldn’t try to “guess” Trump’s policies or their effect on the economy.
Whatever Trump’s agenda, it should be easily pushed through Congress, now that Republicans appear to have won a majority of US House seats, marking a government sweep.
This week has brought into sharper relief some of the contradictions across the various Trump trades, which at times work at cross-purposes.
Gold prices have set consecutive record highs this year, partly on bets for higher inflation and government borrowing under Trump, but its momentum has been stymied by the strong dollar.
The US currency stands near a one-year peak against the euro and a multi-month high against the yen, buoyed mainly by the leap in US yields.
But surging borrowing costs tend to make equity investors antsy, and are a particular weight on high-flying tech shares and other growth stocks.
As markets analyst Kyle Rodda from Capital.com put it, eventually “higher risk-free rates strangle valuations”.
Many of the biggest Asian equity benchmarks are down close to 1% or more, including Japan’s Nikkei, South Korea’s Kospi and Australia’s share index.
Hong Kong’s Hang Seng is off 0.6% but was down twice that earlier in the session.
Wall Street futures point to additional weakness after Tuesday’s pullback, and pan-European STOXX 50 futures are also lower.
The European calendar is fairly light, with financial firms ABN Amro and Allianz headlining corporate earnings announcements.
The Bank of England’s Catherine Mann speaks on a panel today and may draw attention after sterling’s sharp sell-off yesterday.
However, the bulk of central bank speak will come from the Fed again, with regional heads Alberto Musalem, Lorie Logan and Jeffrey Schmid taking to the podium at separate events throughout the day.