Expectations for the U.S. Elections
International Markets: recent interest rate hikes and the U.S. presidential elections are in the spotlight on investors' agendas
By Itaú Private Bank
In this month's International Markets, Marcio Brito, Head Investor at Itaú Private Bank International, analyzes the main events of October and explains how investors are positioning themselves regarding the expectations for the outcome of the U.S. presidential elections.
Check out the main highlights:
Firstly, the Consumer Price Index (CPI) for September, released at the beginning of October, was slightly above expectations. However, the Producer Price Index (PPI) was more subdued, suggesting that the PCE (the index monitored by the Fed) may follow a less concerning path, alleviating, at least partially, the pressures on interest rates.
Additionally, the U.S. added 250,000 new jobs in September, an unexpected acceleration that reduced the unemployment rate to 4.1%, indicating that some workers are finding it more difficult to find new positions and suggesting a possible slowdown in the demand for new hires.
Both the inflation data and the labor market data were sufficient to impact the yield on the 10-year U.S. Treasury bonds, which rose considerably. This movement reflects investors' nervousness about a potentially slower reduction in interest rates.
October also brought the release of the quarterly results of major banks, which typically serve as a barometer for the health of the financial sector and the economy as a whole. JP Morgan, Bank of America, Goldman Sachs, and Wells Fargo exceeded expectations, with solid results in areas such as consumer credit and increased trading revenues. However, the numbers also highlighted some challenges, such as the increase in provisions for loan losses.
In Europe, the situation is more complex. The German economy, which is the main engine of Europe, continues to face difficulties, with activity still at 2019 levels, before the pandemic. This slow growth reflects the challenges Germany faces in regaining momentum, impacted by the global slowdown and the energy transition affecting the industry. In other words, despite internal weakness, the performance of German companies globally is sustaining the index.
Regarding the U.S. elections, most polls still point to a technical tie, but in recent days there have been signs that Donald Trump may have a slight advantage over Kamala Harris. This scenario has led investors to position themselves for a possible Trump victory, which influences expectations about future policies, such as tax cuts and domestic production stimulus.
It is worth noting that some voters have already cast their ballots, while Trump and Harris intensify efforts to reach those who have not yet voted and to encourage the participation of undecided voters, as voting is not mandatory in the United States.
For the next month, the unfolding of the U.S. elections and possible delays in the announcement of official results should be closely monitored, as they may generate market volatility. Additionally, on the corporate side, we will have the continuation of quarterly earnings releases, especially from technology companies in the coming days, which will provide more information about the financial health of companies in a high-interest-rate environment.
Investors should remain focused on inflation and central bank policies. Any sign of rising prices could reignite speculation about a more conservative stance from the Fed.
Watch the full video below: