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[News] Key Focus This Week : Trump’s Full Control of Government! Focus on U.S. CPI and China’s Monthly Data
With the end of the U.S. presidential election last week, diminishing uncertainty boosted equity markets, leading to a strong 4.66% rally in the S&P 500 Index, reaching 5,995.5 points.
In the bond market, the victory of Donald Trump and robust economic data drove the 10-year U.S. Treasury yield to approximately 4.5%, before retreating to around 4.3% following a shift in the Federal Reserve’s stance. Meanwhile, the U.S. dollar index edged closer to the 105 threshold.
Key Economic Data Review for Last Week:
U.S. Presidential Election: Presidential candidate Donald Trump secured seven pivotal swing states, claiming victory with 312 electoral votes over Harris and becoming the 47th President of the United States. The Senate has been confirmed as controlled by the Republican Party, and the House currently shows a Republican lead of 213 seats versus the Democrats’ 203 seats. Should the Republicans maintain their lead, the U.S. will enter a period of unified Republican governance under Trump’s administration.
China’s National People’s Congress Standing Committee: The committee announced an increase in local government special bond issuance limits by RMB 6 trillion (approximately USD 837 billion) to restructure hidden local debts. Additionally, over the next five years, beginning in 2024, RMB 800 billion per year from new local special bond allocations will be earmarked for debt reduction, with an anticipated total restructuring of RMB 4 trillion in hidden debt.
U.S. Monetary Policy Decision: The Fed cut rates by 25 basis points at its November meeting, shifting its policy stance from the markedly dovish position of September to a more neutral outlook. This change reflects stronger-than-expected resilience in recent U.S. economic data. Following the meeting, market expectations for rate cuts next year were adjusted, with the Fed now anticipated to cut rates 25 basis points in December 2024, and 75 basis points in the first half of 2025, before pausing further reductions (previously expected to cut four times in 2025).
Key Economic Data for This Week:
U.S. CPI (11/13): The impact of October’s hurricanes may have pushed many to seek temporary accommodation, driving up service prices. Additionally, hurricane damage to automobiles may lead to further increases in auto parts prices. According to forecasts from the Cleveland Fed, October’s CPI annual growth rate is expected to rise to 2.56% (from 2.41% in September), with core CPI projected to inch up to 3.34% (from 3.26%).
U.S. Retail Sales (11/15): Entering the traditional holiday shopping season, the National Retail Federation anticipates that strong household financial health will continue to support consumer spending. Market expectations for retail sales growth remain robust, with a monthly increase projected at 0.3% (previously 0.4%) and an annual growth rate of 2.2% (previously 1.74%).
China’s Monthly Economic Data (11/15): Against the backdrop of government initiatives such as old-for-new consumer goods campaigns and Singles’ Day promotions, the market anticipates that October’s retail sales growth will increase to 3.8% year-on-year (from 3.2%). With Trump’s election as President and the possibility of significant tariffs on Chinese imports, Chinese firms may accelerate production and exports, with industrial output growth expected to rise to 5.5% (from 5.4%). Meanwhile, fixed asset investment remains constrained by weaknesses in the real estate sector and local government finances, with projected cumulative annual growth holding steady at 3.5% (from 3.4%).
Insights
[News] How will a fully Republican administration impact the future trajectory of the U.S. economy?
The U.S. presidential election was held on November 5, and as of 8:00 AM EST on November 6, presidential candidate Donald Trump has secured 295 electoral votes, capturing all seven swing states, effectively confirming his position as the 47th President of the United States.
The Republican Party has also secured 52 seats in the Senate. While the final results for the House of Representatives remain undetermined, current tallies show the Republican Party leading with 204 seats compared to the Democrats’ 188 seats. If the Republicans also gain control of the House, the U.S. will enter a period of unified Republican governance.
(Source: Bloomberg)
Under a fully Republican administration led by Trump, what policies might have an impact on the economy, and how could these policies steer economic trends?
Tariffs and Trade
Trump’s tax policy is expected to focus on extending provisions of the Tax Cuts and Jobs Act (TCJA), including lowering the top personal income tax rate and lifetime individual exemption limits, with plans to make these tax cuts permanent. Additionally, he aims to lower the corporate tax rate from 21% to 15% and exempt tips and overtime pay from income taxes. On the trade front, Trump plans to impose tariffs ranging from 10% to 20% on all imports and up to 60% on Chinese goods.
Immigration
During Democratic administrations, a relatively lenient stance on illegal immigration has led to record-high numbers of undocumented immigrants, posing potential threats to domestic security. Trump’s policy aims to expel illegal immigrants as comprehensively as possible. He has pledged to reinstate his first-term immigration policies, including the “Remain in Mexico” policy and the travel ban. Additionally, Trump plans to halt refugee admissions and reduce the number of legal immigrants entering the U.S.
Energy
Trump favors traditional energy sources and views climate change as “a hoax.” He has promised to “unleash” America’s energy sector by reducing restrictions on oil and natural gas exploration and encouraging the construction of more refineries. Trump also intends to repeal the Biden administration’s Inflation Reduction Act to reduce subsidies for wind and solar energy, as well as electric vehicles, while expediting the approval process for coal and nuclear power projects.
Financial Regulation
Trump’s approach to financial regulation has historically been more relaxed. The Federal Reserve introduced the Basel III Accord draft in July of last year, initially requiring banks with assets exceeding $100 billion to hold sufficient capital to absorb potential losses. In September of this year, the Fed proposed raising the Common Equity Tier 1 (CET-1) capital ratio for Global Systemically Important Banks (G-SIBs), or “too big to fail” banks, to 9%. Trump’s election could potentially lead to the weakening or shelving of Basel III regulations.
Impact on the Economy
Based on the key policies outlined above, we have referred to the report by Oxford Economics to assess how Trump’s policies may influence the economic trajectory.
The report suggests that if Trump is elected with full Republican control, the extension of the TCJA and the exemption of tips and overtime pay from income taxes could boost real GDP by 1% in the short term. However, over the long term, economic growth could slow due to restrictive immigration policies and increased tariffs on imports.
(Source: Oxford Economics)
Regarding inflation, fiscal expansion and higher import tariffs are projected to raise inflation by 0.8 percentage points. However, the Federal Reserve is expected to halt interest rate cuts by 2026 and begin raising rates in 2027 to prevent runaway inflation.
(Source: Oxford Economics)
In summary, under a fully Republican administration led by Trump, tariff policies are likely to be swiftly enacted through executive orders, while the continuation of the Tax Cuts and Jobs Act (TCJA) is expected to further drive individual asset growth. At the same time, corporate tax cuts could attract capital inflows and potential fiscal spending expansion, boosting short-term GDP growth. However, the potential labor shortages resulting from the expulsion of illegal immigrants, along with inflationary pressures stemming from tariff policies, may pose downside risks to long-term GDP growth.
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(Photo Credit: Donald J. Trump Facebook)
Insights
Key Focus This Week: China’s NPC Standing Committee and the U.S. Presidential Election
Last week, U.S. equity markets experienced a pullback, primarily driven by declines in the tech sector, leading the S&P 500 to drop 1.37%. In the bond market, decreasing election uncertainty and a resilient labor market caused yields on 2-year and 10-year Treasuries to rise to 4.212% and 4.386%, respectively, slightly widening the yield spread to 16 basis points. Meanwhile, the dollar index remained steady around 104.
Key Economic Data Review for Last Week:
U.S. Q3 GDP: U.S. Q3 GDP grew at an annualized rate of 2.8% (previous: 3.0%). Consumption rose by 3.7% (previous: 2.8%), contributing 2.46 percentage points, while imports grew by 11.2% (previous: 7.6%), with a negative contribution widening, reflecting strong consumer demand. Residential investment and inventory changes acted as primary drags, but as rate expectations ease and election uncertainty dissipates, the housing market and corporate investment are expected to strengthen.
Bank of Japan Rate Decision: The Bank of Japan held rates steady at 0.25%, in line with market expectations. BOJ Governor Kazuo Ueda indicated that if economic performance aligns with projections, further rate hikes could be implemented. He also stated that with a more stable market environment, the BOJ no longer needs extra time to observe market dynamics.
U.S. October Employment Data: Due to the impacts of hurricanes and the Boeing strike, October nonfarm payrolls increased by only 12,000 (previous: 223,000), while the unemployment rate held at 4.1%. However, ADP data shows private-sector employment rose by 233,000 (previous: 159,000), suggesting a robust labor market when unaffected by temporary factors.
Key Economic Data Review for This Week:
China NPC Standing Committee (11/4 – 11/8): Markets will closely watch for additional fiscal stimulus measures and debt issuance aimed at boosting domestic demand. According to Reuters, the upcoming policies could total approximately 10 trillion yuan ($1.4 trillion).
U.S. Presidential Election (11/5): Odds from RealClear Politics and various betting platforms indicate Trump as the likely winner of this election. Polls, however, show both candidates in close contention, with results from key states expected between 11/6 and 11/8.
U.S. Monetary Policy Decision (11/7): Recent U.S. economic data has been strong, with core PCE growth in Q3 easing to 2.2% (previous: 2.8%). Despite a lower-than-expected nonfarm payroll increase of 12,000 in October (due to hurricanes and strikes), the unemployment rate remains at 4.1%. With the labor market still stable, markets anticipate the Fed will cut rates by 25 basis points at this meeting, with another 25-basis-point cut expected in December.
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