Closing summary: Dollar weakness as US election remains a toss-up
There is the deep uncertainty over the US election result, with most respected probability models showing a 50/50 chance of Kamala Harris or Donald Trump triumphing.
But what economists do mostly agree on is that a Trump victory would likely be inflationary. That would strengthen the US dollar.
The dollar’s decline on Monday – down 0.6% so far – has come in response to polls suggesting that Harris’s odds are slightly better than previously thought. But it is still a toss-up.
Rupert Thompson, chief economist at Iboss, a financial adviser, said:
Trump remains the favourite at this stage although it remains far too close to call, particularly as the polls over the weekend showed some move back towards Harris.
If Harris wins, the reaction might well be a collective yawn, except for the fact that any victory would no doubt be very close and subject to vehement challenge by Trump and his supporters. She would be very unlikely to gain a clean sweep (ie the Democrats control Congress as well as the Presidency) severely limiting her ability to enact her plans to cut taxes and increase spending.
If Trump wins, the market reaction is more uncertain. Again, it will partly depend on whether he gains a clean sweep which is more likely for Trump than Harris. If he doesn’t, this would constrain his room to cut taxes but not alter his ability to increase tariffs. A Trump victory is likely to lead to a rather stronger dollar and higher government bond yields because his plans to raise tariffs sharply would boost inflation and reduce the willingness of the Fed to reduce rates.
Jonas Goltermann, deputy chief markets economist at Capital Economics, a consultancy, wrote that “whatever the outcome” this week is “likely to prove volatile”.
We think the near-term effect of a Trump win would be a stronger dollar, especially if accompanied by Republican control of Congress, while a Harris win would lead to a weaker greenback. That would be in line with what happened immediately after the last two US elections.
You can continue to follow our coverage from around the world – including the last day for Harris and Trump to make their mark:
In the US, Harris and Trump converge on the rust belt on final day of campaigning
In the UK, Labour is set to raise tuition fees amid deepening university financial crisis
In our coverage of the Middle East crisis, Israel claims to have killed Hezbollah commander inside Lebanon
Thank you for following today, and please do join us tomorrow for more live coverage of financial markets as we brace for the US election result. JJ
Wall Street is in wait-and-see mode ahead of tomorrow’s US election: there is barely any movement on the major stock indices.
Here are the opening snaps, via Reuters:
S&P 500 UP 0.84 POINTS, OR 0.01%, AT 5,729.64
NASDAQ DOWN 18.20 POINTS, OR 0.10%, AT 18,221.71
DOW JONES DOWN 45.20 POINTS, OR 0.11%, AT 42,006.99
The US dollar is on course for its biggest one-day fall since 24 September – six weeks ago.
Since then the value of the dollar has risen by about 3% as traders have adjusted to what seemed increasingly likely to be a victory for Donald Trump.
But it should be stressed that this is all conjecture by a lot of investors with different opinions, and mostly without any special insight into who will win the election. Some foreign exchange watchers are just waiting for that uncertainty to be gone…
No matter who wins the US election, I'll be more than happy when that topic is off the table.
— Marc-André Fongern (@Fongern_FX) November 4, 2024
Donald Trump is expected to increase US government borrowing, prompting the Federal Reserve to raise interest rates. That has meant a Trump win has become associated with a stronger dollar.
That has also meant that the stregnth of the dollar in recent weeks appears to have been closely tied to his prospects in tomorrow’s presidential election. Recent polls suggest that Kamala Harris has found more momentum.
Kit Juckes, a strategist at Société Générale, an investment bank, has this handy graph showing the correlation between moves in betting odds for a Trump victory and the US dollar.
The shift back in the dollar reflects the deep uncertainty over the outcome, Juckes said:
The betting market, which had diverged from opinion polls which never showed a clear outcome, is correcting and that would tend to imply dollar weakness into the vote. Likewise, the futures positioning has switched to a decent-sized long dollar position as of last Tuesday. There is some room the for the market to get closer to flat, and the dollar to fall, but that too could be achieved by the end of today!
A Trump ‘clean sweep’ and a Harris win without a clean sweep remains the two most likely outcomes, in our view, and equally likely. These are the most bullish and most bearish outcomes for the dollar, respectively.
David Morrison, senior market analyst at Trade Nation, a spreadbetting website, said:
The greenback continues to pull back from the three month highs hit last week. The dollar index was trading above 104.00 last Monday, but it has lost around 1% since then. This comes despite some huge swings on Friday which came in the wake of an unexpectedly-large decline in US non-farm payrolls.
The dollar weakness is also indicative of uncertainty ahead of tomorrow’s presidential election, as investors trim their positions with the polls too close to predict a winner.
Post Office redress scheme manager Simon Recaldin said that the current projection is that the Post Office will ultimately pay out around £1.4bn to settle all claims regarding Horizon.
Last week, chancellor Rachel Reeves said that the government has £1.8bn set aside to cover all claims.
The current redress schemes exclude applications from managers and assistants at branches run by subpostmasters, as they do not have a direct contract with the Post Office.
Recaldin said that he understood that the government is currently considering whether to extend the criteria. He added that there is not enough money set aside to cover potential payouts if the eligibility criteria are extended to cover those staff who may have claims.
He also repeated the view held by Nick Read, outgoing chief executive of the Post Office, that the organisation should not be handling the redress schemes.
Recaldin, who has worked at the Post Office since January 2022, said that his view is that there is a “real danger of a conflict of interest” with the organisation operating as “judge, jury and witness”.
There was clear direction from the government that there has to be a degree of accountability here [for the Post Office], and that it was feet to the fire time.
Post Office expects to pay out £650m compensation by March
The Post Office expects to have paid out more than £650m in compensation to subpostmasters by next March, after the ITV series about the Horizon IT scandal resulted in a huge spike in claims, the inquiry has heard.
Simon Recaldin, the head of the four redress schemes the Post Office runs, has said the organisation has so far paid out £302m.
He said that there has been a “clear acceleration” in the number of claims made by Post Office owner operators this year and the organisation expects to pay out a further £500m in the financial year to the end of March 2026.
Alan Bates, the central figure leading the drive for justice for hundreds of subpostmasters in the ITV drama Mr Bates vs the Post Office, has said he will once again consider taking legal action if all claims are not resolved by March next year.
The inquiry saw documents from a Post Office board meeting in March that showed it had received 1,146 late applications to its redress schemes, with 697 coming following the airing of the damning drama in January that brought the plight of subpostmasters to national attention.
The Post Office officially stopped taking applications for its schemes in late November 2020. However, it moved to continue taking “late” applications from the end of 2022. Recaldin said:
I’m very grateful for the TV drama to have raised the issue [and prompted more applications. The peak in activity is absolutely the result of the ITV drama.
The Post Office has been heavily criticised for the way it has handled redress for subpostmasters, with former chair Henry Staunton saying that his view was the remediation department acted in a “bureaucratic and unsympathetic” way.
The share price of NatWest Group has hit its highest level in 13 years after an upgrade from a broker.
NatWest, formerly Royal Bank of Scotland, rose 3% on Monday to a height of £3.89 per share, its highest since 2011 when the bank was dealing with the repercussions from an enormous government bailout.
It came after Peel Hunt upgraded its price target from £4.10 to £4.50. Peel Hunt said NatWest’s premium was justified by its current momentum, the scale of earnings upgrades, profitability and low direct exposure to some UK legal and regulatory issues which are causing uncertainty – notably the motor finance debacle that is rocking several lenders – according to Reuters.
NatWest (or rather RBS) shares peaked at more than £55 before the financial crisis of 2008, before crashing as low as 90p as the extent of its overreach became clear.
It fell below £1 again during the coronavirus pandemic, but has recovered particularly strongly during 2024, helped by higher interest rates.
The Thames Water creditors have given other investors until 11 November to join them, as they revealed for the first time that they have a coordinating committee acting together.
The £1.5bn in rescue money would tide the company over until October 2025, but it would still need to sort out the longer-term need to raise money needed to put Thames Water on a sustainable financial footing.
It is risky proposition: the lenders acknowledge that finding billions of pounds of new equity capital will require the company to battle with Ofwat, the regulator, to allow it to charge customers more.
The creditor group’s spokesperson said:
This agreement will ensure the company remains liquid and will support efforts to identify new, strategic equity, execute a successful turnaround and build a more resilient Thames which can deliver for the customers and the environment in the long term. However, attracting billions in new equity capital relies on there being an investable final determination that addresses the gap between Ofwat’s draft determination and the company’s forecast costs.
Thames Water lenders calls for other investors to join rescue plan
Thames Water lenders have called for more investors to join a £1.5bn cash injection to try to help the struggling utility to survive for another year.
The cluster of investment giants including BlackRock, Abrdn and M&G, which drew up the funding plans, have already agreed to backstop the fundraise, which effectively guarantees Thames Water can keep operating until October 2025, PA reports. Thames Water, which provides water and sewerage services to London and the Thames valley in south-east England, has been struggling to win new backing over a months-long crisis.
US hedge fund Elliott Investment Management, plus investment firms Apollo Global Management and Silver Point Capital are also among the 100 investors in the group.
But the group, which collectively holds about £12bn in so-called class A debt of Thames Water, issued the plea on Monday for more firms to take part in the deal, which would bring down costs for them.
The statement is partly aimed at a secondary group of firms which also hold a portion of Thames Water‘s debt - thought to be about £1 billion of riskier, class B bonds.
The class B bondholders drew up a rival fundraising plan last week, but it was not endorsed by the utility company.
However, the two groups of bondholders are at loggerheads, with the class B group claiming Thames was letting itself fall victim to “vulture rates” on its borrowing that would be unsustainable.
A spokesman for the creditor group said the funding deal is “a critical step in stabilising the company”.
This facility is open to all creditors and we want as many institutions as possible to support the company’s turnaround efforts.
Our creditor group is working intensively with the company to develop a plan that will ultimately lead to a restructuring that unlocks billions of pounds in new investment capital and helps deliver the improved service that customers and the environment deserve.
We want to work constructively with all parties to give Thames the best opportunity to attract the new equity it needs and allow for a full recapitalisation and successful turnaround.
Updated
US dollar falls after polls shift from Trump to Harris
The US dollar has fallen in value after US presidential election polls over the weekend shifted towards Kamala Harris.
The dollar is down by 0.6% against a trade-weighted basket of currencies. The index fell to its lowest level in two weeks.
The dollar had risen in value over the course of October as polls appeared to indicate a higher probability of Donald Trump winning the election. Under the “Trump trade” some investors think that the Republican’s policies would push up inflation, forcing the Federal Reserve to raise interest rates. Higher returns on US assets would then make the dollar more attractive.
The pound rose by 0.4% against the US dollar on Monday to reach $1.2975, while the euro rose by 0.7% to $1.0910.
In practice the election is too close to call with any certainty on the final day of the campaign. While Harris leads Trump in most national polls, Trump leads in several swing states – but by less than two percentage points.
Matthew Ryan, head of market strategy at Ebury, a foreign exchange business, said:
We think that Trump’s emphasis on a lower tax economy could lead to higher disposable incomes and greater consumer spending in the near-term. US growth may be initially stronger in light of the aforementioned tax plans, provided he is able to pass any bills through Congress.
On balance, we think that a Trump election win would be bullish for the US dollar. While the prospect of higher US inflation could have damaging ramifications for medium-term growth, we think that markets will primarily react by pricing in a higher terminal Federal Reserve interest rate. The increased risk of a US protectionism-induced slowdown in global growth could also lead to a worsening in risk appetite and increased safe-haven flows into the dollar, as would heightened geopolitical risks under the Trump administration.
James Dyson, one of the richest men in Britain, has described Labour’s budget as “spiteful” in its increases in inheritance tax.
In a column published by the Times, Dyson said the changes were a “single ignorant swipe at aspiration”, “killing off established family businesses, and any incentive to start new ones” by imposing 20% tax on businesses and farms worth more than £1m.
Those taxes would likely impact Dyson’s estate after he dies, as he is one of the largest landowners in Britain and is listed as the owner of Dyson Farming, the company that owns 36,000 acres of farmland (although his 900-word article does not refer to the inheritance tax bills that may be liable on his estate).
The core of Dyson’s argument is that family businesses make decisions that are better for the country, and that heirs should therefore not be taxed when they inherit assets. Dyson wrote:
Family businesses are an antidote to the short-termism which is the blight of the British economy and of which everyone complains. Family businesses are in the blood: a shared journey between the business and the family across the generations. Britain will sorely miss them.
The wealth of Dyson and his family was estimated this year at £20.8bn, according to the Sunday Times.
In Germany the manufacturing recession has been particularly marked – a major problem for the EU considering its massive size.
Carmakers in particular have reported difficulties, and the automotive industry’s troubles were also behind the fall in confidence from other businesses.
Among the most notable strugglers is Volkswagen, which has told worker representatives that it may close three German factories – the first ever closures in its home market.
S&P Global, which compiles the PMI surveys, said:
The respective rates of contraction remained sharp by historical standards, amid reports from panellists of headwinds to demand from economic and political uncertainty, high interest rates and troubles in the automotive sector.
Europe's factories stuck in 'rut', economists say
European manufacturing’s downturn has lasted 28 months, according to today’s purchasing managers’ index (PMI).
The overall picture is of anb industry that is really struggling, with little sign of good news, according to economists.
Melanie Debono, senior Europe economist at Pantheon Macroeconomics, a consultancy, said there was “little to suggest the rut in industry is ending”.
Overall, the manufacturing PMI remains downbeat. It has underestimated growth in manufacturing in recent quarters so we doubt industrial production will have fallen as much as it suggests in Q4, but we look for a renewed fall in output nonetheless. By country, weakness is concentrated in Germany
Yet it is a continent in two halves, said from Boudewijn Driedonks, partner at McKinsey & Co, a consultancy. He said:
Europe’s manufacturing sector stands at a critical juncture, balancing newfound momentum in the south with deepening challenges in the north. Traditional powerhouses like France and Germany continue to experience declines, as northern Europe faces challenges to reclaim its competitive edge. Also, Italy is seeing output falling at a faster pace than in September.
Spain is structurally on a different outlook. It is in solid expansion territory and is bumping up the overall number with its healthy order book. Greece – the second country with a PMI above 50 – is hiring and expanding output, but at the same time, is seeing new orders declining.
A quick check-in on gilt markets: after a bit of turbulence last week following the UK budget, trading appears to have settled.
The yield on UK benchmark 10-year bonds (aka 10-year gilts) is at 4.48%, up from 4.45% on Friday. That suggests that some investors have sold UK government debt today, but a move of three basis points (0.03 percentage points) is not particularly notable in bond market terms. Yields move inversely to prices.
So for now – let’s see what happens tomorrow in the US elections – there does not appear to be any sign of the bond market turmoil that followed the 2022 “mini-budget” of Liz Truss and Kwasi Kwarteng.
But yields have certainly moved higher, reflecting higher borrowing from the UK government. More borrowing means more bond issuance, which generally makes prices fall.
That raises the question of what the Bank of England will do in response. Markets appear to be thinking the Bank will be slower to cut rates.
Andrew Wishart, senior UK economist at Berenberg, an investment bank, said:
It is customary for the BoE to brush off changes in fiscal policy, but it would have to be tone deaf to do that this time around. Monetary policymakers will surely have to take notice of the Office for Budget Responsibility explicitly raising its interest rate assumptions 25 basis points above market pricing to account for the likely market reaction to the change in the fiscal stance.
By raising the 10-year gilt yield from 4.32% at the pre-budget close to 4.46%, financial markets have done as they were told. It is time for the BoE to follow.
Berenberg now thinks that the Bank will make one cut less, ending up at 4.25% bank rate in the second quarter of 2025, instead of 4.0% in the third quarter.
Ryanair also had another pop at the UK government after chancellor Rachel Reeves announced increased air passenger duty at the budget last week.
Sorahan said that it was a “backward step” for the UK to raise taxes on air fares, which he said would hurt regional economies.
Reeves said that the tax increase was brought in because the levy had not increased in line with inflation. The duty is also partly aimed at taxing aviation’s carbon emissions, which have risen inexorably as carriers like Ryanair have grown. Ryanair is the biggest aviation carbon polluter in Europe, with emissions rivalling the largest coal plants.
Sorahan said:
The new government in the UK said they would stimulate growth, but they’re making it more expensive [to fly]. The government missed a huge opportunity in cost [going up].
I think it’ll have a big impact on the regions.
However, Sorahan acknowledged that the duty increase will only kick in in 2026, so it was not directly linked to Ryanair’s decision, announced last week, to cut UK flights by 10% next year.
Ryanair: fares are more likely to rise than fall in next two years
Ryanair believes that airline fares are more likely to rise than to fall in the next two years.
Neil Sorahan, the Irish airline’s finance chief, said that “the decline in fares appears to be moderating”, and that they are planning for “slightly lower growth which lead into slightly higher pricing”.
Consumers have had less money to spend because of the rapid increase in interest rates, said Sorahan. But the bigger picture is of a European industry that has more demand for flights than it can satisfy, he told the Guardian. Part of that is the Boeing delays but also issues with Pratt & Whitney engines supplied to Airbus, he said:
Fundamentally capacity remains constrained across Europe for some time to come.
Fundamentally there’s more risk to fares going up than fares going down in the next year or two.
Updated
Ryanair’s share price is down by 2.4% today in Dublin, after the no-frills carrier said cut back growth expectations.
Neil Sorahan, Ryanair’s chief financial officer, said that Boeing’s delays to deliveries of new planes were holding it back. Boeing workers are voting on a new pay deal that – if they vote for it – would put an end to weeks of strike action. Speaking about the slower growth expectations, Sorahan said:
This is on the back of the ongoing Boeing delivery delays. We hope they’ll sort it out tonight.
I hope there is a normal to get back to. I’m hopeful the vote gets over the line tonight. Two big elections for me to watch this week.
But even if Boeing’s workers do accept the pay offer – the third to be put to a vote – it is “slow to turn back on” one of the most complex supply chains in the world, said Sorahan.
It will be “a few weeks, if not a few months” before Boeing disruption is sorted, said Sorahan, and Ryanair does not expect to receive any new planes before January or even February.
As to that other election, Ryanair does not fly to the US, but “I’m just hoping from a market perspective that there’s a strong decision one way or another,” Sorahan said.
European manufacturing decline continues, but eases
Europe’s manufacturing production fell for the 19th month in a row in October, but with some tentative signs that the painful recession may be easing, according to the closely watched purchasing managers’ index (PMI).
The index rose slightly to 46 points in October, up from 45 in September, according to data company S&P Global. However, that was still well below the 50 mark that denotes growth in the sector.
European factories have been held back by the two heavyweights: France and Germany. France’s reading was a meagre 44.5, while Germany’s was even worse, at 43 – although that was an improvement from the dire state of the past few months.
Manufacturing in Europe has struggled for two years as exports have waned, demand has fallen, and supply chain problems have held back companies from taking advantage when demand is there.
The recession in German industry is particularly noteworthy, with the car industry under severe pressure from Chinese competitors and several chipmaking investments put on hold.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey, said:
There is one bit of good news in these numbers: the recession in the manufacturing sector did not deepen further in October. Production dropped at a slower pace than in the previous month, and new orders fell less sharply.
It is not encouraging that inventory drawdowns for purchased materials continue at an unusually high pace. The Covid-19 crisis is still leaving its mark here. The ongoing reduction in inventories is obviously related to the fact that companies purchased and stockpiled materials and intermediate goods at an unprecedented scale in 2021 and 2022. Sluggish global demand gives companies no reason to restock, which in turn weighs on the economy.
Burberry shares rise 5% after Moncler takeover report
Burberry is the biggest riser on the FTSE 350 this morning after a report that expensive puffer jacket brand Moncler is considering making a bid for the British fashion champion.
Shares in Burberry are up by 5% after industry blog Miss Tweed yesterday reported that “Moncler could be considering making a bid for London-listed Burberry to create an outdoor specialist giant”.
Among Burberry’s most famous products are its trench coats, so a takeover would make a combined company a formidable force in the £2,000-plus coat business.
Burberry could be vulnerable to a takeover as newly installed chief executive Joshua Schulman tries to turn its fortunes around amid limp demand for luxury items – and to return it to the FTSE 100.
The FTSE 100 in London is up by 0.4% in early trading on Monday. That’s the best of an underwhelming bunch across Europe – likely as everyone holds their breath ahead of Tuesday’s US election.
The FTSE 100 also tends to benefit from higher oil prices thanks to the weight of Shell and BP in the index.
Germany’s Dax is down 0.1%, while France’s Cac 40 has edged up.
Shares in Milan have fallen by 0.2%, while Spain’s Ibex is up by the same amount.
Oil prices rise 2%; Ryanair profits down 18%
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Oil prices have risen 2% after the Opec oil cartel and associate countries said they would delay an increase in output by a month, as they try to sustain prices despite relatively low demand.
The price of Brent crude oil futures, the North Sea benchmark, rose as high as $74.56, up more than a dollar as trading reopened after the weekend. The price of West Texas Intermediate, the North American counterpart, rose 2% to $70.88.
Oil prices have fallen during the second half of the year as some of the world’s largest economies have faltered, depressing demand. At the same time, while Israel’s war in Gaza against Hamas has also spread to the Hezbollah armed group in Lebanon, it has not so far threatened oil supplies directly. That has kept prices relatively low.
Some key members of the Organization of the Petroleum Exporting Countries (Opec) plus other large producers including Russia had planned to increase output, but on Sunday they said they would not go ahead with it. Reuters reported:
The December hike was due to be 180,000 bpd, a small part of the total 5.86m barrels per day of output Opec+ is holding back, equal to about 5.7% of global demand. Opec+ agreed those cuts in separate steps since 2022 to support the market.
Ryanair profits fall after summer fare cuts
Ryanair profits dropped by 18% to €1.8bn in the six months to the end of September, as the no-frills airline was forced to drop fares.
Fares fell by 7% over the summer, Ryanair said on Monday, although it added that downward pressure on prices appeared to be “moderating”. The airline disappointed investors over the summer with a profit warning as it was forced to cut fares.
Ryanair chief executive Michael O’Leary said the company had offered “more price stimulation than originally expected”, although that had resulted in improved market share.
Overall traffic rose by 9% in the six months compared with the same period last year.
O’Leary said:
Forward bookings suggest that third-quarter demand is strong and the decline in pricing appears to be moderating. We remain cautious on the third quarter’s average fare outlook, expecting them to be modestly lower than the third quarter prior year.
The airline also gave one of its regular digs at Boeing. The US planemaker, which supplies all Ryanair aircraft, has struggled with major delays, including an ongoing strike that has held back deliveries of its bestselling planes. Ryanair said that compensation for late deliveries did not make up for 5m in extra passengers it could have carried.
The agenda
8:50am GMT: France HCOB manufacturing purchasing managers’ index (PMI) (October; previous: 44.6 points; consensus: 44.5)
8:55am GMT: Germany HCOB manufacturing PMI (October; previous: 40.6 points; consensus: 42.6)
9am GMT: Eurozone HCOB manufacturing PMI (October; previous: 45 points; consensus: 45.9)
