THINK Ahead: The Oohs and Ahhs of this week's election and financial fireworks | Article

Remember, financial markets have started pricing in a Trump victory in recent weeks. It is widely believed that the possibility of expanded and/or expanded tax cuts coupled with tariffs means a stronger dollar and higher returns. If there is no clear outcome for a while, our strategists expect some of this Trump positioning could be shaken as the chances of a Harris victory are reassessed.

The risk of longer delays in the close Senate elections does not yet have to be taken into account. Don't forget that the market reaction could be very different if we get a divided Congress.

You have to have compassion for the senior Fed leaders. Officials could be forgiven for holding back next week, but they will be in the spotlight on Thursday with their rate decision. And it's hard to see from the latest data that they'll do anything other than cut interest rates by 25 basis points. Hurricanes and strikes mean Fed officials will take October's shockingly low job growth with a bucket of salt.

The Bank of England is also meeting next week, but let's face it, they have bigger problems closer to home. Government bond, or gilt, yields have risen significantly since big tax rises and even bigger spending increases were announced in Wednesday's budget. This is nowhere near the uproar following the infamous 2022 mini-budget. However, markets have concluded that Labor's first budget will shorten the BoE's easing cycle.

We are far less convinced. This may seem like a big stimulus, but only if you compare it to the March Budget's tax and spending plans, which were widely seen as unworkable regardless of who won the July election.

Spending on daily necessities should always have increased, even if the announcements still dwarfed most people's expectations. And large tax increases make the medium-term economic impact of higher spending less clear. That's the conclusion we expect the BoE to reach, and a 25 basis point cut is still largely the base case on Thursday.

I don't have to tell you that next week will be the most important of the year so far. So sit back, light a sparkler, roast some marshmallows, upload a chart of 10-year Treasury yields, and enjoy the show.