As I immersed myself in intense study for the upcoming exam, the world seemed to speed up, flooding me with notable events—almost as if it conspired to distract me from my books. This month has been dense with significant developments, making it quite a challenge to distill everything into the newsletter. Ironically, while the newsletter was delayed, the cause was not the event-packed calendar but rather illness that set me back last week. In hindsight, though, this delay was fortuitous, as it allowed me to include both the U.S. election outcomes and the FOMC meeting insights—coverage that would have been impossible otherwise.
United States
Beginning with the economic overview, the broader picture in the United States remains much the same as last month: inflation is stable, unemployment holds steady, and growth remains positive and stable.
There was considerable attention on the recent NFP report drew considerable attention, showing an increase of only 12,000 jobs in October—well below the expected 113,000 and a notable drop from the revised 223,000 in the prior month. This sharp decline likely reflects the impact of recent hurricanes, with Governor Waller suggesting that the storms could have shaved off as many as 100,000 jobs from the headline number. However, while the BLS noted that payrolls in some industries were likely affected by the hurricanes, they also stated that it’s impossible to quantify the specific impact on month-over-month changes in national employment, hours, or earnings, as the survey isn’t designed to isolate effects from extreme weather events.
Still, I wouldn’t dismiss this number entirely, as it could hint at underlying weaknesses in the labor market, potentially giving the Fed more room to bring rates closer to neutral.
Election Special
On November 5th, Americans headed to the polls for the Presidential Election. I’ll leave aside the irony of holding a national election on this date. Right up until the last moment, traders were actively placing bets on platforms that priced the outcome probabilities, with election-day odds hovering at an even 50-50 split.
What’s especially interesting about this election is how it demonstrated the efficiency of betting markets like Polymarket. Indeed, the gap between their implied electoral outcomes and the actual results was minimal, reinforcing the accuracy of these platforms in reflecting real-time probabilities. In other words, it turns out that when people have skin in the game, their collective predictions are impressively accurate.
As you all know by now, the election resulted in a significant victory for the Republicans, who not only secured the presidency, confirming Trump as the 47th President, but also achieved a rare feat in modern elections: winning the popular vote. The results revealed a strong wave of red unity across the country, reflecting widespread support among Americans.
Of course, this newsletter isn’t focused on politics, and many of you know I lean right, so you can probably guess my perspective on the outcome. However, I’d like to pause and reflect on the reactions to the results. Right-wing supporters were understandably pleased, seeing the election as a turning point with the potential to end the woke ideology and focus on policies favoring the private sector—a promising outlook. Left-wing supporters, meanwhile, were understandably disappointed. Yet, among some on the left, the response went beyond disappointment, with reactions that bordered on hysteria, describing the win as the triumph of “the bad guy” or a sign the country had “turned Nazi.” I can’t help but ask them: do you genuinely believe Democrats lost the Senate, the House, the Electoral College, and the popular vote just because half the country is racist, sexist, homophobic, and ignorant? If that’s the case, perhaps there are deeper issues worth focusing on in your life beyond debating politics.
Now, let’s think of the implications of the result.
First of all, the loose fiscal and tight monetary policy, plus tariffs, are all bullish USD. On the contrary, both the CNH and the AUD would suffer due to tariffs against China. Therefore, my biases on AUDUSD and USDCNH are bearish and bullish, respectively.
Looking at commodities, on the short-term the tax cuts are expected to provide a temporary boost to oil prices as disposable income increases, potentially driving demand. However, on a longer-term horizon, the Republican focus on U.S. energy independence would aim to expand domestic production, likely placing downward pressure on oil prices over time. This scenario also anticipates increased pressure on OPEC+ to ramp up supply, which could add further downward momentum to oil prices in the long-run. However, a stricter enforcement of sanctions against Iran could reduce global oil supply and support prices.
Another factor we need to keep in mind when it comes to oil and gas is that the Trump administration will exert pressure on Russia and Ukraine to negotiate a settlement, assuming the EU doesn’t interfere, which could potentially reduce disruptions to oil and gas supply chains in Eastern Europe and, in turn, contribute to a more stabilized and potentially lower oil price environment throughout 2025.
From a macro perspective, the campaign proposals to raise tariffs, maintain loose fiscal policy, and tighten immigration are generally seen as inflationary for the U.S. economy. If implemented, these policies could limit the Fed’s ability to continue lowering rates in the coming years. In light of this, I believe markets are underestimating the inflationary impact, and my bias is bearish on SOFR Z7. In simpler terms, for those whose mental well-being hasn’t been entirely consumed by finance, this means I think markets are pricing rates too low for 2027, given the anticipated policies.
Here’s a key summary of the policy proposals, from Newsquawk:
- Economy: Trump’s goal is to “end inflation and make America affordable again.”
- Taxes: With the 2017 tax cuts set to expire in 2025, Trump plans to extend them to maintain the lower tax rates. He also intends to reduce the corporate tax rate further, below the current 21% (down from the 35% rate during his last term), with an added proposal for a 15% “Made in America” corporate tax rate.
- Tariffs: Trump aims to impose significant tariffs on foreign imports to incentivize U.S.-based production. His plans include a 100% tariff on every car crossing the Mexican border, along with tariffs of up to 20% on general foreign imports and up to 60% on Chinese goods. He has also proposed a “100% tariff” on imports from countries that shift away from using the U.S. dollar.
- Energy and environment: Known for his pro-oil stance, Trump’s policies are less favorable to renewable energy. He plans to eliminate the $7,500 tax credit for EVs and has pledged to repeal the Inflation Reduction Act, including its subsidies for green technologies like wind turbine manufacturing, solar components, and battery production. This outlook could negatively impact solar stocks.
- Geopolitics: Trump has promised to end the Russia-Ukraine war immediately, even suggesting he could secure peace within 24 hours through a negotiated settlement with Russia. He has also positioned himself as a strong supporter of Israel, although he has offered little detail on a plan to end the conflict in Gaza.
Federal Reserve
Given that the last FOMC meeting took place just one day after the elections, it was likely one of the most challenging for policymakers. Combined with the strong economic data we’ve seen so far, this was a key reason I expected the officials to keep rates unchanged. I was wrong—this is what happens when you stop following the markets closely for a while.
Indeed, the Federal Reserve cut rates by 25bps to 4.50-4.75%, in line with market pricing and analyst expectations, in a unanimous decision. One notable change in the statement was the removal of the phrase, “has gained greater confidence that inflation is moving sustainably toward 2 percent.” The Fed also revised its explanation for the rate cut to “in support of its goals,” rather than “in light of the progress on inflation and the balance of risks.”
During the press conference, Powell confirmed that these changes were not meant to signal a shift in policy: he explained that the language used before the cut was essentially a test to see if the Fed was ready to ease policy, and now that the cut has been made, the test has been completed. If anything, these changes to the statement further emphasize the Fed’s commitment to balancing both sides of its mandate, rather than focusing solely on inflation.
Powell also highlighted the strength of the economy, the resilience of the labor market, and the significant easing of inflation: downside risks have diminished. However, he kept his options open, stating that the Fed could act more quickly or more slowly depending on how the economy evolves.
Arguably, the most memorable moment of the press conference was this one, which turned Powell into a bit of a rockstar in the finance world for the night.
Looking ahead, the market is pricing in an additional 25bps rate cut in December, and both JPMorgan and Goldman Sachs have revised their 2025 Fed rate cut projections, now expecting quarterly cuts starting in March.
Europe
Apparently, the German government has collapsed.
I believe that, between the hostile takeover of Commerzbank last month and this, we’ve gotten a kind of revenge for what happened in 2011, and we can be friends again. Now, I’m not an expert in German politics, for two main reasons: the first is that I don’t care about them, and the second is that I don’t speak German. However, after following the situation closely for a while, I think I now have a decent understanding of the events.
Basically, what happened is that Chancellor Scholz wanted to borrow more money—not for Germany’s benefit, but rather to spend it on Ukraine. But someone refused, and now Scholz lacks a majority in Parliament. It’s not a joke: it really unfolded this way.
More on the topic on this Bloomberg’s article and on this newsletter by my dear friend Fabian.
European Central Bank
Although the ECB had initially positioned itself for an unchanged rate in October following September‘s meeting, soft inflation data and weak survey results forced the Bank to ease policy, and as expected, the ECB opted to cut rates by 25 basis points. The Bank reaffirmed its data-dependent approach and reiterated that it will maintain sufficiently restrictive policy rates for as long as necessary, and the only change in the statement was that the ECB now expects inflation to reach 2% in 2025, compared to its previous guidance of the second half of 2025.
At the follow-up press conference, Lagarde highlighted that more data would be available before the December meeting, suggesting there is no preset expectation within the Governing Council for the final meeting of the year. Additionally, Lagarde made it clear that she has not opened the door to another rate cut in December. However, she emphasized that there is no question that current policy remains restrictive.
The market is currently pricing another 25bps cut in December, and four more cuts are fully priced for 2025. Everything considered, I believe the ECB will likely accelerate its rate-cutting cycle, in contrast to the U.S. where rate cuts may decelerate or even pause. As a result, my bias for EURUSD is bearish.
Japan
To nobody’s surprise, the BoJ kept rates unchanged at 0.25%, an outcome that money markets were pricing at 99% probability ahead of the announcement anyway. The BoJ refrained from offering any new policy signals, emphasizing that it will continue to pursue monetary policy aimed at sustainably and stably achieving its 2% inflation target. While acknowledging that real interest rates remain very low, the BoJ indicated that it would consider raising rates further if the economy and inflation develop as expected.
However, the Bank also highlighted the ongoing uncertainty surrounding Japan’s economy and inflation, stressing the need to remain vigilant to developments in financial and foreign exchange markets, and their potential impact on the domestic economy and prices. Furthermore, the BoJ noted the importance of monitoring economic conditions abroad, particularly in the U.S., as well as market movements, as these could influence Japan’s economic outlook and the risks associated with achieving its projections. Despite these concerns, the BoJ’s outlook report was largely unchanged, reflecting the lack of significant new developments from the meeting.
Following the announcement, the yen strengthened as market participants absorbed the BoJ’s decision, noting that there had been no significant deviation from the central bank’s current stance despite prevailing political uncertainties.
Finally, during the press conference, Governor Ueda adopted a more hawkish tone, stating that the BoJ did not feel the need to use language suggesting they were in a position to be overly cautious. He also remarked that the central bank could begin contemplating the next rate hike when there is greater certainty about meeting its economic and inflation projections.
United Kingdom
As expected, the MPC opted to cut rates by 25bps to 4.75%. The decision was made with an 8-1 vote split, with the hawkish Catherine Mann being the sole dissenter preferring to keep the rate unchanged. In the policy statement, it was reiterated the bank’s commitment to maintaining a restrictive Bank Rate for as long as necessary until the risks of inflation sustainably returning to the 2% target have diminished further. In any case, the statement also emphasized that a gradual approach to removing policy restraint remains appropriate, with Governor Bailey stressing that the MPC cannot afford to cut rates too quickly or too aggressively.
The accompanying MPR ncluded an upward revision to the inflation forecasts for 2025 and 2026, with the Bank of England noting that the UK budget is “provisionally expected to boost inflation by just under 0.5% at its peak, between mid-2026 and early 2027.” However, these projections are likely to be overstated.
At the press conference, when asked about the impact of the UK budget on monetary policy, Governor Bailey stated that the MPC would need to assess how the budget might affect inflation, although he did not anticipate this having a significant impact on the rate path. Regarding future rate trajectory, Bailey declined to provide specifics on what “gradual” means in terms of rate cuts, but emphasized that if inflationary progress continues, the MPC will respond accordingly.
Overall, the market views the latest UK budget as prompting the MPC to adopt a relatively hawkish stance compared to its counterparts. As a result, the probability of a rate cut in December is seen at just 20%, with expectations for a total of 65bps of cuts by the end of 2025.
Canada
In line with most analysts’ expectations and market pricing, the BoC reduced its key interest rate by 50bps, lowering it from 4.25% to 3.75%. This marks the fourth consecutive rate cut by the BoC, and the first time in this cycle that such a significant reduction has been implemented. The BoC explained that the 50bps cut was aimed at supporting economic growth while maintaining inflation near the midpoint of its 1-3% target range.
The accompanying Monetary Policy Report revised the 2024 and 2025 CPI forecasts downward, while leaving growth projections for these years unchanged. For Q4 2024, the year-over-year CPI forecast was revised down to 2.1% from 2.4%, core inflation was adjusted up to 2.1% from 2.0%, and GDP growth increased to 2.3% from 2.1%. For those interested in the theoretical side of economics, the BoC also maintained its neutral rate estimate between 2.25% and 3.25%, and kept its output gap forecast unchanged at -0.75% to 1.75%.
Looking ahead, the BoC signaled that if the economy evolves in line with its latest projections, further rate cuts are likely. However, the timing and pace of these cuts will be guided by incoming data and its impact on the inflation outlook, meaning that the BoC will remain data-dependent. The central bank emphasized its flexibility, adopting a “meeting-by-meeting” approach to future decisions. The key factor will be how actual growth compares to the forecasts: weaker growth could prompt markets to price in a 50bps rate cut, but this would bring the rate to the upper end of the neutral range, making a 25bps cut more probable.
Australia
Similar to the BoJ, the RBA meeting was largely uneventful, as the bank decided to keep rates unchanged for the eighth consecutive time. This outcome was unanimously predicted by economists, and the accompanying rhetoric offered little new insight, reiterating that the board will continue to rely on data and evolving risk assessments. It also noted that inflation remains too high and is not expected to return sustainably to the midpoint of the target until 2026. The RBA further emphasized that policy will need to stay sufficiently restrictive until inflation is on a sustainable path toward the target range, and reiterated that no options are being ruled out.
The latest quarterly Statement on Monetary Policy highlighted that core inflation remains elevated, with service inflation expected to decline only gradually. It also noted that Australian policy is not as restrictive as that of many peer countries, even after recent rate cuts abroad. Additionally, the RBA revised down its GDP, household consumption, trimmed CPI, and core inflation forecasts.
The post-meeting press conference provided little new information, with RBA Governor Bullock stating that the final stage of reducing inflation is challenging and that rates must remain restrictive for now. She also indicated that there are still upside risks for inflation, but assured that the RBA stands ready to act if the economy weakens more than expected. She affirmed that the current settings are appropriate and that there had been no discussions about specific scenarios for rate changes, adding that the current Cash Rate path priced by the market is as reasonable as any.
New Zealand
The RBNZ implemented a widely anticipated 50bps cut to the OCR, a decision expected by the majority of economists in a recent survey and priced in by money markets with around a 93% probability ahead of the announcement. The RBNZ stated that New Zealand is now operating with excess capacity, and that low import prices have contributed to disinflation. The Committee noted that annual consumer price inflation is within the 1-3% target range and deemed it appropriate to reduce the OCR by 50bps to help achieve and maintain low and stable inflation.
The Minutes from the meeting confirmed that future OCR adjustments will depend on the Committee’s evolving assessment of the economy. They also discussed the merits of a 25bps versus a 50bps cut but concluded that a 50bps reduction was more in line with their mandate of maintaining low and stable inflation. Additionally, the central bank noted that the new OCR level of 4.75% remains restrictive and keeps monetary policy well-positioned to respond to any near-term economic surprises. They also highlighted that the current economic environment allows for the possibility of further easing monetary policy restrictions.