Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Chief Investment Officer
Summary: We think the Fed will cut rates before the scheduled 18 March FOMC meeting and most likely by a FULL 75 bps - to get some effect and get ahead of the market before they hit the zero bound for policy rates.
Conditions: The market volatility (VIX spot) is 45%, 30Y US Fixed Income is up 4 points today alone & WTI Crude is down 30% since the beginning of the year.
What’s next:
My personal take:
Policy makers are now beyond panic – they are in angst mode (and for good reason as their own ignorance has made the present crisis worse) and that’s when you really need to take notice.
We have reduced long volatility and will starting hedging/trading upside policy action over the next week
We suggest buying March – S&P Future calls (one example below)
The most difficult thing as a trader is to have the flexibility to change your view – there are hundreds of reasons to be bearish here and fear the next two weeks, but central banks and politicians are thinking the same thing. Being short the market, you want the market to collapse, while they want to stabilize it and will shred the rule book to try to do so.
Historically policymakers have had very big policy “bazookas” to counter all negative moves in excess of 10% :
1987, 1992, 2000, 2008/9, 2011 – the present situation to this seasoned veteran is a total repeat of 2008 – even the projection of policy rates is following the same play book:
The time line of Federal Reserve moves in 2008 below (Source: St. Lois Fred with my edit)
12/16/08| 0-.25%|0.25-0.50%|SURPRISE |Easing |-.75% | 0.50%|10-0
10/29/08| 1.00%| 1.00%|Expected |Easing |-0.50%| 1.25%|10-0
10/08/08| 1.50% |n/a |Unscheduled|Easing |-0.50%| 1.75%|10-0
10/07/08 conference call to review recent developments
09/29/08 conference call to review recent developments
07/24/08 conference call to discuss liquidity facilities
04/30/08| 2.00%| 2.00%|Expected |Easing |-0.25%| 2.25%| 8-2
03/18/08| 2.25%| 2.25%|Expected |Easing |-0.75%| 2.50%| 8-2
03/10/08 conference call to review financial market development
01/30/08| 3.00%| 3.00%|Expected |Easing |-0.50%| 3.50%| 9-1
01/22/08| 3.50%|n/a |Unscheduled|Easing |-0.75%| 4.00%| 8-1
But… but...
We think the present markets will force the Fed to cut by 75 bps pre-meeting – Why?
US Yield Curve today vs. One month ago
VIX spot – now higher than 2015
SPX with retracements levels for reference
Below is a number of stocks you can place in a Watchlist you can create in your platform
Airlines today and yesterday!
#SaxoCredit basket
SAXO CFD Indices today
Country ETFs - Saxo
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)