7 November 2024: Housebuilding slumps despite Government undertakings

Attention switches from politics to monetary policy today, as the FOMC and MPC meet to discuss a possible cut in short-term interest rates.

Analysts see a 25-basis point cut as the most likely result from the MPC, but uncertainty clouds the outlook.

However, the discussions will have a political undertone, as last week’s budget and the result of the U.S. presidential election weigh heavily on members’ minds.

While the Prime Minister allowed himself to congratulate Donald Trump, his good wishes may have been delivered through gritted teeth.

On the surface, the special relationship has not been affected over the past four years despite Joe Biden’s clear preference for mainland Europe.

President-elect Trump will expect the UK to “join the queue” with other nations for any “special” treatment as he prepares a series of isolationist measures.

Officials at the Bank of England will have been in deep conversation with their Treasury counterparts this week to confirm the Independence of the Central Bank and fully understand Rachel Reeves’ intentions regarding fiscal policy and long-term borrowing.

Having seen the rules change, the MPC will want to be on the same page as the Treasury.

According to Andrew Bailey, with inflation falling fast, he will unlikely want to contradict himself by presiding over another no-change decision.

He is expected to have his “ducks in a row” on the views of his permanent colleagues and despite dissension from “perma-hawk” Catherine Mann, a twenty-five-point cut is likely to be agreed later today.

New Conservative Leader Kemi Badenoch attended her first Prime Minister’s Questions yesterday and promptly pressured Sir Keir Starmer over the Budget, specifically calling the changes to inheritance tax on farmers spiteful and unnecessary.

After highlighting past criticism of Trump from senior Labour figures, she challenged her opposition to be “more than student politicians” and to invite Trump to address Parliament.

Foreign Secretary, David Lammy, must have been squirming in his seat as Badenoch recalled a series of Tweets in which he labelled the President-Elect as a “woman-hating, neo-Nazi-sympathizing sociopath” and a “profound threat to the international order”.

The pound ended lower yesterday as the dollar reacted positively to Trump’s victory. It fell to a low of 1.2834 and closed at 1.2881.

They love a sequel in the U.S. Remember The Godfather, Rocky and even A Nightmare on Elm Street! They also love a comeback like the U.S. ice hockey team in 1980, the New England Patriots in 2017 and of course Mohammed Ali.

In political terms, the result of this week’s Presidential Election may well be the greatest comeback of all time.

It was expected to be the closest election in living memory, but Kamala Harris was simply “blown out of the water”.

While Trump was promising to “make America great again” in the wake of his stunning victory, Harris appeared at a rally last evening which felt like a wake.

She was not just beaten down; she was crestfallen to a degree that had rarely been seen before in the political arena.

Trump has promised to have the war in Ukraine settled before he takes office on 20th January. That will be a tall order and may involve a significant degree of threat about cutting down arms supplies to Kyiv and of arm twisting for President Zelensky about ceding territory to achieve a settlement.

Trump has already said that he will “tariff the hell” out of China, and a similar fate may be in store for the European Union.

He has also threatened to pull the U.S. out of NATO if its members do not commit to greater spending on defence.

It is expected to be a wild ride for the next four years since that is Trump’s way, but where did it all go wrong for Harris?

It was supposed to be all about the Swing States, but from the moment Georgia announced its result it was “one-way traffic”, ending when he won Pennsylvania back from the Democrats.

Trump will return to the White House after a roller-coaster campaign during which he was indicted four times, criminally convicted and survived two assassination attempts.

Surrounded by a large entourage including his family, Vice President JD Vance and his family together with supporters ranging from the world’s richest man, Elon Musk, and figures from the sporting world, Trump delivered a hugely confident speech in which he appeared to believe that the result had never been in doubt.

The dollar and asset markets have reacted positively to Trump’s win, although the threat of a trade war and protectionism may hurt markets once the euphoria has died down.

The index climbed to a high of 105.45 and closed at 105.16 in its largest one-day movement in more than ten years.

Lost in the tumult of the election is the FOMC meeting, which is going on and will announce the result of its deliberations later today. While the data has been a little muddled recently, the October Employment report would suggest a twenty-five-point rate cut.

Should that happen, it may dampen the market’s enthusiasm for the dollar a little, but overall, it should continue to make gains.

Christine Lagarde is struggling to find ways to improve productivity and growth in the European Union while avoiding a direct endorsement of Mario Draghi’s plans, which he delivered to Ursula von der Leyen recently.

She has taken on the air of someone thinking, “Why didn’t I think of that?”

Yesterday, she spoke of the need for banks to be “truly European”.

Reducing the ring-fencing of capital and liquidity along national lines would allow funds to flow freely within banking groups and facilitate lending across borders,” Lagarde said about integration.

Europe needs truly continental banks to operate effectively, she said yesterday, as Germany’s Commerzbank tries to fight off a potential takeover attempt by Italy’s UniCredit.

“Truly European banks can effectively diversify their risks across sectors and regions,” she said. “They can lend more at scale and thus handle cross-border financing projects that smaller, locally focused banks cannot.”

This is a sensible suggestion but won’t increase the bank’s appetite to lend across the entire region since they will always gravitate towards “home.”

German Chancellor Olaf Scholz fired his Finance Minister yesterday, leaving the government teetering on the brink of collapse.

In a televised address, Scholz said he had dismissed Finance Minister Christian Lindner, saying it “was necessary to prevent harm to our country.”

The firing came after days of political negotiation between the key members of Germany’s ruling “traffic light” coalition government – Scholz of the Social Democratic Party, Lindner of the Free Democratic Party, and Robert Habeck of the Green Party.

Lindner had been outspoken about the country’s economy, delivering a “blueprint for recovery” recently, which was rejected by Scholz.

Following the announcement, which came amid fears that an incoming Trump administration could spell unwelcome news for an already ailing German economy, Lindner’s Free Democratic Party said it had left the coalition, but Habeck said the Greens would remain.

Scholz said he would now call a confidence vote for January 15, which could allow elections to be held by the end of March next year. He said he would remain in office until January 15 and attempt to get the most important legislation done, suggesting he would talk to opposition leader Friedrich Merz’ of the Christian Democratic Union (CDU) to pass laws relating to the economy and defence. “The economy cannot wait until after the elections,” Scholz said.

The result of the U.S. election has weighed heavily on the Euro. It fell to a low of 1.0682 yesterday, closing at 1.0735 as the possible introduction of tariffs on EU exports to America is expected to hit already weak EU trade.

Have a great day!