Any election in the United States is probably one of the most important events in the modern world, as it determines what American policy will be in the next couple of years. Yes, U.S. elections are held every two years. At least to Congress. But senators are elected for a term of six years. And so the stars coincided, which last week completely re-elected Congress and a third of the senators. It can be said that in terms of importance it is almost like the election of the president of the United States. Before the vote itself, everyone was just arguing that the Democrats would win these elections. A different outcome was not even discussed. Well, since everyone was confident in the victory of the Democrats, the media propaganda and misinformation actively discussed options for the subsequent development of events. Almost every publication stated the fact that the victory of the Democrats will allow them to have a much greater opposition to the policy of Donald Trump, which includes blocking many of his initiatives. And this can lead to a certain paralysis of the entire system of power in matters of managerial decision-making, which has unpredictable consequences. So investors, opening up newspapers every morning, clearly thought about how to plan their investments if the US government is unable to make the necessary decisions because of children's disputes and grievances of Democrats and Republicans. But journalists were not the only ones who were frightened by the public, since especially hotheads predicted the imminent impeachment of Donald Trump, as if all Democrats were small children, who were only trying to exact revenge on the offender. But such a prospect does not fit into my head at all, because in the history of the United States this has never happened. Murders of presidents have happened, and even one person was elected to the presidency three times, but impeachment is something new. And how to behave in a similar situation is not clear to anyone. So investors who were driven to panic were actively getting rid of dollars.
But the results of the vote put everything in its place, and although the Democrats really, as predicted, received a majority in Congress, and for the first time in eight years, the Republicans have strengthened their control over the Senate. Such a construction reduces the risks described above, since the impulses of the kindergarten, which can now turn into Congress, will be restrained by strict teachers from the Senate. Of course, no one promises an easy life, and Trump will now have to put much more effort in pushing his initiatives. But the worst-case scenario seems to have been avoided. So as soon as the vote count was over, the exhausted investors returned to the dollar. Donald Trump will have to reckon with Congress, and to carry out his initiatives, he will have to make concessions, and there is nothing better than to further strengthen sanctions against Russia, so that the children of the Democratic party will be at least a little happy and gloated. However, it threatens to turn into a radical deterioration of US relations with the rest of the world, if someone loses control of the situation. After all, the Democrats have a long list of ideological enemies that need to be dealt with.
Additional assistance to the dollar was provided by the results of the meeting of the Federal Open Market Committee, since in essence the Fed has withdrawn all questions regarding the pace of increase in the refinancing rate. Let me remind you that after inflation in the US slowed down, which came as a complete surprise to all those who did not monitor stocks and their endless growth, they began to argue that the Fed will inevitably be forced to reconsider its plans. After that, a number of representatives of the regulator have repeatedly stated that it is not necessary to draw hasty conclusions from a one-time decline in inflation and it is necessary to make sure that this process is sustainable. However, such signs are not observed. But such arguments do not add optimism, especially for those who plan their investments for years to come. So, the text of the accompanying commentary clearly states that the Federal Open Market Committee sees no reason for concern and expects inflation to increase in the near future. In other words, there is nothing to panic for no reason, because the Fed intends to continue to raise the refinancing rate, in accordance with the previously outlined plans.
Frankly speaking, against the background of such large-scale events, few people were interested in any macroeconomic statistics. Anything about Brexit and Italy were temporarily forgotten. Yes, and some much less meaningful data that can compete with the elections and the Fed meeting, did not come out. We can note the data on UK GDP for the third quarter, which only confirmed the first estimate, showed an acceleration of economic growth. As well as retail sales in Europe, the growth rate of which has slowed significantly. Moreover, it is so strong that even inflation is not compensated, so it is too early to hope that the ECB will decide to start tightening monetary policy.
So, the elections are already in the past, and it seems like you can once again return to worries about Brexit and European public debt. But this week there is so much significant data that journalists with their intrigues, scandals and investigations simply have nowhere to turn. After all, in the United States there are data on inflation, which should show its acceleration from 2.3% to 2.5%, and if this is confirmed, any doubts about the Fed's further actions will be noted. And not only that inflation should accelerate, so the growth rate of retail sales may increase, which will give the dollar even more confidence. Well, the cherry on the cake will be industrial production, which should also increase and make an excellent completion of a cloudless picture.
But Europe will have nothing to answer, since inflation is likely to remain unchanged, and the second estimate of GDP for the third quarter will only once again confirm the slowdown in economic growth. The growth rate of industrial production should slow down from a modest 0.9% to an almost imperceptible 0.3%. If we add to this the concern about the budget deficit in Italy and expand it to consider the size of public debts of the euro area countries, the picture is quite sad. The economy is slowing down, the ECB is pursuing an incredibly soft monetary policy and prints money, the euro zone countries have a chronic budget deficit, and it is not clear how they will pay off debts. Especially if Mario Draghi goes crazy and turns off the printing press. So, despite the apparent overbought of the dollar, it is worth waiting for the decline of the single European currency to 1.1175.
But the pound has a slightly better outlook, as quite good statistics are expected. In particular, inflation should accelerate from 2.4% to 2.5%, which will increase the likelihood of raising the Bank of England's refinancing rate before the completion of the Brexit procedure. However, with the "divorce" process itself, things are not so smooth, as Theresa May decided to ask Europe to postpone the processing date. The fact is that the prime minister cannot agree on the provisions of the agreements with the Parliament, which is clearly aimed at the political elimination and intends to put all the blame on her. And, frankly, the idea of postponing the date of Britain's withdrawal from the European Union only demonstrates the weakness of Theresa May's positions, which foreshadows a political crisis and new elections for the United Kingdom even before Brexit itself. And this makes the situation unpredictable. At least for investors. But the same investors, in addition to inflation, will have another reason for joy, since the growth rate of average wages, taking into account the premiums, can accelerate from 2.7% to 3.0%. This indicator is very important for investors, as it demonstrates the willingness of workers to work more, and although they have to pay bonuses for this, it still leads to savings on wages, since the bonus is still less than the salary for another employee who would have to be hired. But it will not do without a negative in the form of retail sales, the growth rate of which should slow down from 3.0% to 2.8%, which is slightly more than the growth of inflation. That is, the growth of inflation does not cover the decline in consumer activity, and the profit of companies is reduced. So the pound has all the prerequisites to decline to 1.2775.
