(Bloomberg) — US equity futures maintained their post-Election Day gains and the dollar eased as traders continued to map out Donald Trump’s return to the White House and what it holds for the Federal Reserve’s interest-rate path.
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S&P 500 contracts edged higher after the US benchmark surged in the previous session on bets that the newly elected President will boost corporates through pro-growth policies. An index of the dollar retreated 0.3% following its best day since 2022. Moves in US Treasury yields were muted after Wednesday’s seismic selloff.
Markets are taking a breather Thursday after grappling with the far-reaching effects of a Trump presidency. His win has forced investors to come to terms with economic policies that could lead to fewer Fed rate cuts, along with a possible Republican sweep of Congress that could help fuel fiscal expansion.
“What we saw yesterday was the playbook of the Trump trade in action but it’s soon going to evolve,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux in Paris. “US yields can’t continue to go up with US equities on the rise, my conviction is that yields will calm down.”
Later today, Fed Chair Jerome Powell will face a tough test as a second Trump term sparks concerns over inflation. Officials are expected to lower rates by 25 basis points, a move that will come on the heels of the half-point cut in September.
Traders are currently betting on about 100 basis points of Fed cuts by September 2025, compared to 110 basis points on Tuesday.
“What would be interesting is not so much the cut, but communication around December and next year,” James Vokins, portfolio manager at Aviva Investors, said in an interview. For Powell, “it will be a very difficult situation and it will be a very difficult communication to manage, he will have to be careful not to be too firm on any particular direction.”
The Bank of England lowered borrowing costs earlier on Thursday by 25 basis points to 4.75%. Governor Andrew Bailey said that rates are likely to fall “gradually from here” and that last week’s UK budget will lift inflation by just under half a percentage point at its peak.
Europe’s benchmark stock index advanced 0.6% as traders digested the possibility of fresh elections in Germany and whether it could help to revive growth in Europe’s biggest economy. The country’s 10-year yield rose above the equivalent swap rate for the first time as traders braced for the possibility of an administration that could be more tolerant of increasing debt.
