In November, there are two events that investors should pay close attention to, as they may trigger significant turbulence in the financial markets. The first is the US Supreme Court’s final ruling on Trump’s tariff appeal in early November; the second is the UK’s release of its fiscal budget at the end of November.
The US Supreme Court previously announced that it would hold a final hearing and issue a ruling on Trump’s appeal regarding tariff imposition on November 5th. At that time, the court will hear arguments from Trump’s side defending the legality of his tariff policies. If Trump loses the appeal, it is expected to have a catastrophic impact on the US financial markets, further severely disrupting the US stock, foreign exchange, and bond markets. US President Trump and Treasury Secretary Yellen have previously stated that a loss in this case would lead to disastrous consequences.
The reason lies in the fact that the tariffs already collected by the US government may need to be refunded to the affected countries, which would cause huge losses to the US government and lead to a sharp deterioration in the US fiscal deficit and trade deficit. If the US government is no longer able to impose tariffs on imported goods in the future, it is also expected to sharply cool down US inflation. This would enable the Federal Reserve to adopt a more aggressive accommodative stance when formulating future monetary policies, potentially increasing the scale and frequency of interest rate cuts. Consequently, the US dollar index may face massive sell-offs and plummet, further impacting both the US stock and US bond markets, with unthinkable consequences.
In fact, the challengers to Trump’s tariff policies include a number of small businesses and a coalition of 12 states, most of which are governed by the Democratic Party. Therefore, if Trump loses the case, it will also impact next year’s midterm elections, possibly leading to a major defeat for the Republican Party and forcing it to hand over control of both the Senate and the House of Representatives to the Democratic Party. For the Trump administration and the Republican Party, this landmark lawsuit is a "must-win" battle.
Conversely, if Trump wins the appeal, the uncertainty that has plagued the US dollar for months will finally be resolved. This is expected to provide strong positive support for the US dollar, and there is even a possibility of the US dollar making a strong comeback and entering a new bull market. Financial markets will anticipate that Trump can continue to impose tariffs, which would, on one hand, alleviate the severe twin deficits (fiscal and trade deficits) in the US, and on the other hand, keep US inflation at a persistently high level. This may make it difficult for the Federal Reserve to cut interest rates, pushing monetary policy back to a hawkish stance—all of which is favorable for the US dollar’s performance. Therefore, regardless of whether Trump wins or loses this landmark lawsuit on November 5th, it is bound to trigger violent fluctuations in the financial markets. Investors are advised to trade in line with the trend after the result is announced, as this approach is safer, more appropriate, and has a higher probability of success.
According to the latest announcement by the UK Labour Party last month, UK Chancellor of the Exchequer Rachel Reeves will release the new UK annual fiscal budget on November 26th. Financial markets generally believe that the UK government is facing two intractable problems: economic stagflation (slow economic growth accompanied by persistently rising inflation) and a fiscal deficit black hole. Therefore, the budget is expected to focus on strictly controlling public spending to reduce the fiscal deficit. On the other hand, it will also need to introduce stimulus measures to boost economic growth. In other words, Rachel Reeves will simultaneously implement targeted substantial tax increases and significant spending cuts to fill the fiscal gap.
If this is the case, it is estimated that such measures will do little to address the UK’s severe stagflation; they may even further dampen the economy and exacerbate stagflation. If the tax increases are insufficient, financial markets will also worry about the UK government’s inability to effectively reduce the deficit. Caught in this dilemma, financial markets generally hold a pessimistic view on whether the new budget can bring any positive news.
Looking back at history, the release of the UK government’s fiscal budget has often triggered sharp fluctuations in the British pound. For example, in 2022, UK Prime Minister Liz Truss (of the Conservative Party) appointed then-Chancellor Kwasi Kwarteng to announce a mini-budget involving tax cuts for high-income groups. The news shocked financial markets, leading to sell-offs in UK stocks, the pound, and UK bonds. The GBP/USD exchange rate even plummeted to a historic low of 1.0284. In the end, the Bank of England had to intervene to stabilize the market, announcing short-term bond purchases to steady the UK bond market, which helped the pound stop falling and rebound. Subsequently, Chancellor Kwarteng and Prime Minister Truss resigned one after another, becoming the shortest-serving Chancellor and Prime Minister in the UK since 1970.
In fact, during Rachel Reeves’ last announcement of a deficit-reduction plan in Parliament, she was also besieged by MPs both within and outside her party. This forced UK Prime Minister Keir Starmer to ask her to withdraw the welfare-cutting provisions, leading Reeves to break down in tears on the spot. At that time, the pound also fell by more than 200 pips. Therefore, the outside world generally believes that the new fiscal budget is unlikely to bring any surprises, which may put further pressure on the British pound or even cause it to plummet.
Finally, there are not many central banks holding interest rate meetings in November—only the Reserve Bank of Australia (RBA) on November 4th, the Bank of England (BoE) on November 6th, and the Reserve Bank of New Zealand (RBNZ) on November 26th. Among these, market consensus suggests that due to the local economic recession, the RBNZ—after a sharp 0.50% interest rate cut in the previous meeting—may cut interest rates by another 0.25% this time to stimulate the economy. This remains unfavorable for the New Zealand dollar; it is estimated that the New Zealand dollar will find it difficult to reverse its weak trend, and thus is not worth being optimistic about.
In the event of any inconsistency between the English and Chinese versions, the Chinese version will prevail.This article is from Plotio. Please indicate the source when reprinting.
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