Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
Macro:
Macro events (times in GMT): Swedish Riksbank Rate Decision, exp. -0.5% to 2.75% (0830), Norges Bank Rate Decision, exp unchanged at 4.5% (0900), Euro-area Sept Retail Sales (1000), Bank of England Rate Decision, exp. -0.25% to 4.75% (1200), US Initial Jobless Claims (1330), EIA’s Natural Gas Storage Change (1530), US Federal Reserve FOMC meeting and rate decision, exp. -0.25% to 4.75% (1900).
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities:
Volatility: Volatility levels plummeted post-election, with the VIX dropping substantially alongside the VIX1D, indicating reduced near-term uncertainty. However, VIX1D remains around 15 as markets anticipate today’s Federal Reserve decision. The widely expected 0.25% rate cut is priced in, but any deviation could trigger market reactions. Trump-related stocks saw high activity in options markets, signaling continued investor interest in hedging or speculating on policy impacts under his administration.
Fixed Income: US yields eased back lower overnight after jumping higher as the US election rolled in clearly showing a dominant win for Donald Trump. European short yields dipped sharply yesterday, perhaps on anticipation that Trump’s threatened tariffs would hit growth in the Eurozone. Watching German yields specifically today after we are set for a snap election next March after Chancellor Scholz fired the finance minister as bemoaned the need for more fiscal stimulus. Today sees a Bank of England meeting as UK 10-year Gilt yields rose within 15 basis points of the 2023 highs, with much of the recent rise in yields linked to the heavy new spending in the new Labour governments budget. For a preview of the FOMC meeting later today click here.
Commodities: The post-election reaction in commodities focused on the negative impact of a surging dollar, with markets weighing the potential consequences of Trump’s return to the White House. Among other outcomes, this could lead to a US-China trade war and reduced focus on the energy transition, potentially lowering demand for key commodities. Copper suffered a 5% loss before bouncing overnight, followed by silver and gold—two metals that enjoyed a strong run-up ahead of the election. However, a simultaneous surge in the dollar and yields forced prices through key technical levels, overwhelming a market heavily positioned long. Crude prices held steady, with several opposing forces keeping prices range-bound for now, while natural gas experienced a modest Trump bounce. Overall, attention is now turning to today’s rate decisions, especially from the Federal Reserve.
Currencies: The US dollar stormed stronger on the election results yesterday, but it turned weaker in places late yesterday and overnight, with the Australian dollar even reversing almost all its decline versus the greenback since the election results became known. Sterling is testing its cycle highs versus the euro ahead of today’s Bank of England meeting. USD traders will watch the FOMC meeting tonight for hints on the Fed’s view of policy now that the US election result is known, given a possibly quite new policy environment next year.
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