KUWAIT: In October 2024, the US ISM Services PMI rose unexpectedly to 56, the highest since August 2022, up from 54.9 in September and surpassing the forecast of 53.8. This growth was primarily driven by a rebound in employment (53 vs 48.1) and slower supplier delivery times (56.4 vs 52.1). Price pressures slightly eased (58.1 vs 59.4). However, there were slower gains in business activity/production (57.2 vs 59.9), new orders (57.4 vs 59.4), and inventories (57.2 vs 58.1), while the backlog of orders shrank further (47.7 vs 48.3). According to Steve Miller of the ISM, concerns over political uncertainty, hurricanes, and labor issues at ports were highlighted, though the longshoremen’s strike had a lesser impact than anticipated due to its brief duration.

US presidential election

Stocks soared to record highs, with the S&P 500 gaining 2.1 percent on optimism around Donald Trump’s anticipated return to the White House and the potential impact of his policies on the markets. Investors are betting that Trump’s administration will introduce pro-growth measures beneficial to corporate America, helping the S&P approach its 48th record this year. Small-cap stocks surged by 5 percent, bolstered by speculation that Trump’s protectionist approach would benefit domestic companies.

In addition, expectations of lower taxes and relaxed regulations boosted bank stocks, while Medicare-focused insurers rose on hopes of higher government payments for private Medicare plans. Trump Media & Technology Group Corp also saw a 6 percent increase, as investor sentiment tilted toward pro-growth, pro-deregulation, and pro-market themes. Following the news the Greenback rallied, breaching the 105.00 mark as market participants anticipated Trump’s policies on immigration, trade and taxation would stimulate growth and inflation.

Unemployment claims

New applications for US unemployment benefits edged up slightly last week, indicating little overall change in the labor market but highlighting the impact of recent hurricanes and strikes, which slowed job growth in October. Although the labor market shows signs of easing, wage pressures remain strong, raising concerns over the inflation and interest rate outlook. Data from the Labor Department revealed that unit labor costs rose notably in the third quarter, with a sharp upward revision to second-quarter figures, suggesting inflation may struggle to stabilize at the Federal Reserve’s 2 percent target.

In response, the Fed lowered interest rates by 25 basis points to a 4.50 percent-4.75 percent range. Economist Paul Ashworth of Capital Economics noted that high labor costs are a key factor in labor-intensive service prices and warned that if they don’t slow, the Fed may find it challenging to sustain inflation at 2 percent. The Labor Department also reported that initial unemployment claims increased by 3,000 to 221,000 in the week ending Nov 2, matching economists’ expectations. Meanwhile, continuing claims, which signal hiring trends, rose to 1.892 million for the week ending Oct 26.

Federal funds rate

The Federal Reserve announced a quarter-point interest rate cut to 4.50 percent-4.75 percent as it begins to assess how President-elect Donald Trump’s proposed policies ranging from tax cuts and tariffs to widespread deportation—might impact the US economy, with Fed Chair Jerome Powell stating that the election results will not affect monetary policy in the short term. Instead, the Fed will continue reviewing data to guide its adjustments as inflation approaches the central bank’s 2 percent target.

While the Fed’s primary goals of stable inflation and full employment remain, Powell noted that understanding how Trump’s fiscal strategies will influence these areas will take time. Reflecting on past policy impacts, Powell referenced the major spending measures of President Biden’s early years, which spurred growth but also contributed to inflation that the Fed later had to manage through rate hikes in 2022 and 2023. Although inflation has since eased, Powell sees a gradual return to a neutral interest rate, acknowledging that exact targets could shift, particularly if the new administration enacts rapid policy changes backed by a Republican Senate and possibly a Republican House.

Powell, who had earlier clashed with Trump during his first term, confirmed he would continue as Fed Chair until 2026, affirming his legal authority against removal over policy disagreements. In the meantime, both inflation and rates are trending lower, aligning with the Fed’s projections for moderating price pressures amid steady economic growth and a stable job market.

With another rate cut anticipated in December, Powell emphasized that the Fed’s calibrated approach aims to maintain economic stability, though he noted the process could be complex as it navigates new fiscal policies. The greenback closed last week at 104.997.

BoE monetary policy decision

The Bank of England (BoE) lowered its interest rate by 25 basis points to 4.75 percent in an 8-1 vote by the Monetary Policy Committee, marking the second rate cut this year after initiating its easing cycle in August. This decision, though influenced by easing inflation, came amid a new fiscal backdrop shaped by the Labor government’s recent budget, which raised growth and inflation forecasts and complicated the outlook for further policy easing.

The BoE now projects inflation will reach around 2.75 percent next year, up 0.5 percentage points from previous estimates, before easing back to its 2 percent target, while economic growth is expected to increase by about 0.75 percent over the next year. Governor Andrew Bailey emphasized that the bank must proceed cautiously with rate cuts, keeping monetary policy restrictive until inflation risks subside further. Despite money markets largely anticipating the rate cut, analysts caution that future reductions may proceed more slowly due to inflationary pressures from the government’s expansive budget and rising global risks, such as potential US tariffs. The GBP/USD currency pair closed last week at 1.2921.

Asia-Pacific

The unemployment rate in New Zealand rose to 4.8 percent on Wednesday, missing expectations of 5.0 percent, while higher than the previous 4.6 percent figure. Meanwhile, the employment rate was at 67.8 percent, and annual wage inflation was at 3.8 percent. The report highlights raising unemployment in the area, rising from 3.2 percent in September 2022 to its current levels.

The Reserve bank of Australia has decided to keep interest rates unchanged at 12-year highs of 4.35 percent. The decision came in line with market expectations, as more confidence is needed that core inflation is moving towards the RBA’s target. It has now been a year since rates have been kept at that level, after a series of hikes that began in May 2022. Currently, annual inflation is at 2.8 percent in September, while core inflation was at 3.5 percent.

Kuwait

Kuwaiti dinar

USD/KWD closed last week at 0.30675.