Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
Macro:
Macro events (times in GMT): Canada Oct. Employment Data (1330), US Nov University of Michigan Sentiment (1500), Fed’s Bowman, a voter, speaks (1600)
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities:
Volatility: Volatility continues to ease as the initial reactions to the election outcome and Fed rate cut stabilize, with VIX and short-term measures like VIX1D and VIX9D moving lower, indicating reduced short-term risk perception. Options market volumes remain elevated, with notable activity in Trump-related names, indicating continued investor interest in hedging or speculating on policy impacts.
Fixed Income: German bunds fell across tenors due to concerns over a possible no-confidence vote against Chancellor Olaf Scholz, which could lead to early elections. This led to a bear-steepening of the German curve, with the 30-year yield up 5bps at 2.70% suggesting potential for more fiscal spending. Meanwhile, UK gilts gained after the Bank of England cut the key rate by 25bps as expected, with the UK 10-year yield dropping 6bps to 4.50%. U.S. Treasuries saw strong gains on Thursday, partly recovering from losses after the presidential election results. The 7-year tenor led the rally, with yields across the curve falling during Fed Chair Powell’s press conference after a 25bps rate cut, leaving open the possibility of another cut in December. The 10-year yield dropped about 10bps to 4.33%. Early in the day, gains were driven by short-covering and bolstered by a rate cut from the Bank of England,
Commodities: The sector is heading for a weekly gain, having recovered strongly from the post-election slump that was mostly driven by USD strength, which by now has almost reversed, and the tariff threat, which may take many months to be implemented. Gains are led by the agriculture sector and energy, while precious metals remain the biggest loser, primarily due to profit-taking and technical selling that has yet to be reversed. Copper rose strongly on optimism that US tariffs might lead to Chinese stimulus measures, but gains were pared overnight as traders await the outcome of a key legislature meeting that may unveil policy support. Crude trades up 3% on the week, with multiple opposing forces keeping prices range-bound for now. Gold holds below USD 2700 as a post-election consolidation phase continues with silver weakness also weighing.
Currencies: Much of the post-election US dollar rally has been unwound, as the JPY trades within the middle of the pre-election range. The Euro remains weak in the crosses, while the Australian dollar has been a star performer after copper rallied to erase the post US election, likely on Chinese stimulus hopes. Sterling remains near cycle highs versus the euro after the Bank of England meeting saw the bank warning on the possibly inflationary impacts of the new budget. The FOMC did little for the US dollar as Fed Chair Powell was clearly determined not to provide any guidance for now after the bank chopped the policy rate 25 basis points.
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