Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
Webinar replay: Trading the 2024 US election
Macro:
Macro events (times in GMT): US Sep. Factory Orders (1500), US 3-year Treasury Auction (1800), China Oct. Caixin PMI (0145), Australia RBA meeting (0330) US Election tomorrow.
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities:
Volatility: The VIX is at 21.88, down 5.53%, reflecting a slight easing in volatility as markets await this week’s high-stakes events. The one-day VIX1D spiked 41% to 19.22, reflecting immediate event-driven uncertainty. Expected moves for the week are notably elevated, with implied moves at 2.53% for the SPX and 3.10% for the NDX, signaling investor caution. The put/call ratio stands at 1.61, the highest since early August, indicating increased hedging as traders position for potential market turbulence around the U.S. election and Fed decision. The Fed’s rate decision on Thursday could add to the volatility, particularly if it deviates from market forecasts.
Fixed Income: UK gilts stabilized on Friday following the selloff caused by the UK Autumn Budget, with the 10-year yield settling at 4.44%, down from a peak of 4.53% during the week. Expectations for BOE rate cuts were adjusted to 95bps by the end of 2025, compared to 125bps a week earlier, with a 21bps cut anticipated this Thursday. German bonds saw the two-year yield dip to 2.25%, and the yield curve steepened as 10-year Bund yields rose to 2.40%. Meanwhile, US Treasury yields climbed to their highest levels in months, erasing earlier gains from weak but distorted October jobs data. This increase reflected caution ahead of key events, including refunding auctions, the US presidential election, and the Fed’s rate decision, with the 10-year yield reaching 4.36% on Friday, the highest since July.
Commodities: WTI crude climbed toward $71 per barrel on Monday, marking a fourth consecutive session of gains as OPEC+ delayed its December production plans, aiming to stabilize prices and prevent oversupply amid demand uncertainties. Renewed Middle East tensions further supported oil prices, with Iran signaling a potential "crushing response" to Israel, possibly timed after the U.S. election but before the January inauguration. Meanwhile, Brent crude rose to $73.1. Gold remained steady at $2,750 as investors assess safe-haven demand and the Fed's policy outlook ahead of the election, while silver held around $32.49, close to a two-week low.
Currencies: Sterling stabilized Friday after the steep run lower on the announcement of the autumn budget, but long UK gilts bear watching this week for whether the bond market will continue to revolt on the fiscal outlook for the country, which would spill over into sterling if yields continue to rise. Elsewhere, the US dollar sold off in the Asian session to start the week after a strong finish on Friday, seemingly as Trump’s odds of winning have faded sharply in betting markets. The US election is tomorrow.
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