### United States
Before the US election, trends towards higher interest rates and stock market gains were already evident, although these movements stalled while the dollar remained robust. Much uncertainty arose from the Republican triumph in the elections, with concerns about potential broad tariffs proposed by Trump, such as a 60% tariff on China and a 10-20% tariff on other countries. Although some individuals in the new administration suggested these might not be implemented literally, a global tariff regime could impact countries with strong trade connections to the US, including Mexico, Canada, certain regions in Europe, and Vietnam. The intricate nature of global integration is highlighted by the example of RTX (Raytheon), having numerous suppliers in China. Imposing tariffs could incentivize domestic alternatives, yet raw and refined metals essential for various industries pose a challenge due to China’s comparative advantage.
The US dollar experienced fluctuations during Q3, fueled by rhetoric from the Republican campaign advocating for a weaker dollar to boost manufacturing and economic competitiveness. Concurrently, economic indicators such as moderating price pressures and increasing unemployment rates prompted the Federal Reserve to ease monetary policy, starting with a 50 bp rate cut. US rates and the dollar found a low point soon after, buoyed by a strong rise in nonfarm payrolls. Speculations of increasing US deficit and debt levels persisted, with the market factoring in significant rate cuts. The robust US data, along with the Republican victory, prompted a market reassessment, leading to adjusted expectations for monetary policy actions. Treasury yields rose, reflecting both inflation expectations and Fed rate expectations without substantial risk premiums due to supply or political concerns.
### Eurozone
The Eurozone finds itself in a precarious economic situation, struggling with weak growth while facing challenges from rivals like the US and political pressures from Russia and China. The region’s economic fragility is exacerbated by energy cost increases due to harsh winter conditions, compounded by geopolitical tensions. The European Central Bank (ECB) faces a balancing act amid rising inflation and euro depreciation, opting for cautious rate cuts despite significant pressures. The euro faces additional challenges, as broad US tariffs could impact export-heavy economies like Germany and Italy.
Political instability plagues major European nations, with Germany’s government losing a confidence vote leading to upcoming elections, likely ushering in a CDU-led government. France grapples with its economic challenges, risking a confidence vote amid budgetary disputes. Consequently, the euro reached new lows in late November as economic and political uncertainties mounted.
### United Kingdom
The British economy witnesses a tumultuous phase, with sterling trading at lower levels compared to its pre-US election status. Economic data reflecting disappointing retail sales and PMI figures contribute to the currency’s volatile performance. Despite some recovery towards the end of the month, market optimism remains tempered. The Bank of England (BOE) faces limited options for December rate cuts despite expected inflationary pressures. Future rate cuts are anticipated as early as 2025.
Internationally, the UK hopes for rejuvenation of its relationship with the US, potentially focusing on trade deals under the new US administration. Yields on UK Gilts fluctuate as economic data and broader market trends influence investor sentiment.
### China
The Chinese yuan has experienced fluctuations against the dollar, clawing back losses from Q3 in the latter part of the year. The People’s Bank of China (PBOC) has intervened strategically to stabilize the trading band, as global economic pressures mount. Domestic efforts to bolster property and equity markets continue amid external competitive pressures and trade tensions. Meanwhile, China is asserting its stance by maintaining rigid export restrictions on critical materials.
Relations between China and the US remain strained, evident in the composition of Trump’s administration team holding firm positions against China. The yuan moves in tandem with other major economies, showcasing a correlation with Japan’s yen as market dynamics evolve.
### Japan
The yen’s value shifted alongside notable US rate changes, as domestic economic conditions signal recovery. Japan’s political landscape sees challenges, with the governing coalition losing its majority, leading to a minority government under Prime Minister Ishiba. Japan rolls out fiscal support measures, including a supplemental budget and tax changes, aiming to stabilize households.
Despite strengthening economic indicators, the market anticipates further Bank of Japan (BOJ) tightening. Correlations between Japanese market movements and US Treasury yields remain keenly observed, as developments unfold.
### Canada
Canada’s economic stability is challenged amid US tariff threats, with potential implications of a 25% tariff on imports. Such actions could substantially impact Canada’s economy, which is heavily reliant on US trade. Tariff threats appear as negotiation tools, yet they inject considerable uncertainty into the economic landscape.
As the Canadian economy comes to grips with potential border control tension-related tariff impositions, the domestic market focuses on upcoming Bank of Canada meetings. Analysts foresee possible rate adjustments reinforcing monetary policy stability amid economic pressures.
### Australia
The Australian dollar witnessed significant drops, recovering slightly thereafter. Market volatility persists with global election outcomes influencing trade and economic perceptions. Australia’s central bank (RBA) maintains a hawkish stance, pushing cut expectations to mid-2025.
The Australian economy experiences tepid growth while neighboring New Zealand tackles aggressive rate cuts. The Reserve Bank of New Zealand (RBNZ)’s actions contrast with Australia’s approach, emphasizing regional economic strategy divergences. Despite ongoing challenges, currency performances reflect broader market realignments.
### Mexico
The Mexican peso has continued to falter against the US dollar, with political changes heightening investor caution. Trump’s tariff rhetoric exacerbates uncertainties, threatening economic stability. Although Mexico seeks diplomatic resolutions, currency exchange rates remain volatile under the constant negotiation pressures. The Mexican central bank, amid moderating inflation rates, continues its easing cycle, although fiscal stability is yet to be achieved.
In Brazil, fiscal turmoil affects the real, affecting regional economic performance, indicating broader fiscal policy consequences across Latin American markets.
