US Elections, Fed Rate Decision, RBA and BOE Meetings

Stocks, bonds and gold may fall together if US election uncertainty persists

• Stocks and bonds may fall together due to uncertainty about the outcome of the US election.
• The Fed will cut rates again, but markets are likely to focus on guidance.
• Dovish RBA and BOE commentary could provide a boost to the US dollar.

A now-familiar dynamic weighed on Wall Street last week as interest rates continued to rise. Two- and 10-year Treasury yields rose in tandem, with slightly more action at the long end leading to a slight flattening of the yield curve. The benchmark S&P 500 fell 1.5 percent, while the technology-oriented Nasdaq 100 lost 1.7 percent.

Gold prices and the US dollar were little changed against this backdrop. The yellow metal took a minor step down from record highs, down 0.2%. The greenback outperformed its major peers, falling against the euro but gaining ground against the pound and commodity currencies, the Australian and Canadian dollars.

In this context, these macro reference points are likely to shape what comes next.

U.S. election uncertainty could send stocks and bonds lower

The US presidential election is an obvious focal point on this week’s calendar. National opinion polls are coming together, according to data from Real Clear Politics. Betting markets have moved toward a similar conclusion over the past week, previously favoring Republican Donald Trump over Democrat Kamala Harris.

For traders, looking at the outcome as a binary event risk, rather than through the lens of a possible governance style and policy outlook, seems most practical. Overall, the degree of post-election uncertainty is likely to define price action. Stocks can be affected as returns rise if the result is unclear or contested within 24-48 hours of polls closing.

Will the Federal Reserve accept strong US economic data?

Markets are overwhelmingly leaning in favor of a 25 basis point (bps) interest rate cut by the Federal Reserve. The probability of another such move in December is 81.7%, meaning traders expect the US central bank to stick to the forecast revealed in September.

This likely means markets perceive a degree of “autopilot” in play until the calendar turns to 2025. However, traders will be keen to weigh how the central bank frames the hotter US economic data series than expected, offered since the rate-setting Federal Open Market Committee (FOMC) met six weeks ago.

In turn, markets saw these upbeat results as speaking to upward pressure on inflation, driving Treasury yields and the US dollar higher in anticipation of a sharp adjustment that limits the path of rate cuts next year. The 73 bps price is now – a full cut lower than Fed officials projected.

Dovish RBA, BOE guidance could provide US dollar boost

The US dollar could find itself higher as the Australian and UK central banks lean towards the dovish end of the spectrum with their policy updates this week. The Reserve Bank of Australia (RBA) is expected to keep its target interest rate at 4.35%, while the Bank of England (BOE) will cut by 25bps to 4.75%.

Both of these results come at a high price and therefore may not have much to offer as directional inspiration for the markets. Unfavorable growth dynamics for both economies since mid-year may still inspire policymakers to take a more accommodative stance in official commentary. This could affect the Australian dollar and the British pound.

Ilya Spivak, tastylive head of global macro, has 15 years of trading strategy experience and specializes in identifying thematic movements in currencies, commodities, interest rates and stocks. He hosts Macro Money and co-hosts Over time, monday-thursday. @Ilyaspivak

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