Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Macro:
Macro events (times in GMT): Norway Oct CPI & PPI (0700)
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Asian markets dropped sharply Monday after Friday’s China stimulus announcements disappointed, amounting mostly to plans for defusing local government debt risks there. Friday’s session in the US was quiet, though the major indices notched new all-time highs after the prior two days of strong gains in the wake of the US election. Tesla shares jumped over 8% on Friday, sending the market value of the company over USD 1 trillion for the first time since early 2022. This despite Tesla reporting that sales of its vehicles have hit their lowest level since the beginning of the year in October. The stock market will be open today in the US, although it is a bank holiday (so no trading in bonds).
Fixed Income: On Friday, the German 10-year yield dropped 8 basis points to 2.37% on expectations of an early election. Traders also raised ECB rate cut bets, anticipating a 28 basis-point reduction in December with more to follow next year. UK gilt yields also fell but underperformed Bunds as traders slightly reduced BOE rate cut expectations. In the U.S., the 2s10s yield curve flattened as traders unwound short positions after the presidential election. Short-term yields rose on speculation that the Fed might pause rate cuts by December, while long-term yields dipped, with the 2-year yield up over 6 basis points and the 10-year settling at 4.31%. This week, investors will focus on U.S. data releases, including inflation, retail sales, and industrial production, along with numerous Federal Reserve speeches, especially from Chair Jerome Powell. In Europe, attention will be on UK employment data, ECB minutes, EU Commission forecasts, and a speech from BOE Governor Andrew Bailey.
Commodities: An eventful week that saw precious and industrial metals trade lower due to a stronger USD and higher yields, leading to profit-taking after the US election and disappointment over the lack of fresh stimulus in China and Trump’s tariff threat. Gains meanwhile were led by the grains sector, which rose strongly on Friday after the U.S. Department of Agriculture lowered its U.S. harvest outlooks for both corn and soybeans. Crude oil slumped on Friday amid concerns over China’s outlook, which supported the general weak demand focus, but overall, the market appears rangebound for now with focus on OPEC+ which meet on 1 December. EU gas prices jumped 8.3% last week on expectations of increased demand as temperatures look set to drop sharply across Germany, France, and the UK.
Currencies: Choppy action in currencies continued on Friday as the US dollar rallied again, largely reversing the prior day’s sell-off and re-establishing the strong dollar reaction to the US election outcome. Elsewhere, EURGBP dropped below 0.8300 for the first time since early 2022 as the market continues to believe that increased government spending under Labour’s new budget will keep the Bank of England rate higher and their rate cut path shallower than that of the ECB. The BoE said last Thursday that it saw the new budget adding about 0.5% to inflation in the coming year.
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