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): Eurozone Oct Final PMI (0900), UK Oct Construction PMI (0930), EIA’s Weekly Crude and Fuel Stock Report (1530), ECB Speakers: Vujcic, Lagarde, Guindos and Villeroy, US 30-year Treasury Bond Auction (1800)
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: US equities surged overnight as Trump’s strong showing in the election lead to hopes of a full Trump 2.0 scenario in which the Republicans also take control of both houses of Congress and can get new tax cuts and deregulation measures passed. The Trump 2.0 scenario (as yet uncertain as of this writing as discussed above) is the reason small caps strongly outperformed, jumping more than 3.0% by this morning from yesterday’s close versus about half that amount for the other major indices. European stock futures, on the other hand, dropped overnight on the concerns that Trump tariffs would be negative for Europe’s export sectors before recovering ahead of the open this morning. In yesterday’s session, Palantir led gainers with a massive 23.5% uplift after reporting strong earnings and an optimistic outlook
Volatility: Volatility metrics suggest a significant drop in expected market swings once trading begins, as VIX futures have fallen over 10%, signaling reduced risk expectations. The VIX itself dipped 5.53% to 21.88, even as VIX1D surged 109% to 30.62, indicating heightened immediate-term caution due to the election. Meanwhile, equity futures point to a positive open, with S&P 500 (ES) and Nasdaq 100 (NQ) futures up 1.59% and 1.51%, respectively. Implied moves for today remain elevated at 1.42% for the SPX and 1.66% for the NDX, reflecting sensitivity to election results and the Fed’s policy decision.
Fixed Income: European sovereign bonds fell yesterday, with UK gilts leading declines after weak demand for a 10-year auction and strong US economic data. UK 10-year yields rose to 4.54%, while Bund yields increased 3bps to 2.43%, and Italian and French yields saw slight gains. Markets adjusted expectations for Bank of England rate cuts, raising odds for the central bank to cut rates only by 85bps in the next ten months. US Treasuries ended the day mixed, with late gains erasing early losses, leaving 10-year yields unchanged. The market initially weakened after stronger-than-expected ISM services data but later recovered with a solid 10-year note auction that stopped 0.3bps through the WI level, supporting a bull flattening move. Short-term yields rose about 4bps, while long-term yields fell up to 2bps, flattening the curve. However, as the US election unfolds and a red sweep becomes probable, the US yield curve has started to bear-steepen with 2-year yields having up by 10bps to 4.28%, and the 10-years up by 16bps to 4.43% since last night. For a preview of the FOMC meeting tomorrow click here.
Commodities: Broad losses were seen overnight as traders priced in the prospect of a Trump 2 scenario where Republicans secure control of Congress and the White House—a scenario likely to trigger the promised tariffs on imported goods, especially from China. With that in mind, we are seeing industrial metals taking the biggest hit, led by copper and iron ore, while grains trade lower, led by soybeans on fears that China’s countermeasures may hurt U.S. exports of key crops. Crude oil trades lower as well, with the prospect of tariffs hurting already weak market fundamentals for 2025. Gold breaks lower, weighed down by continued USD strength and risks that the FOMC may slow its rate-cutting pace amid worries that inflation may re-ignite. Overall, the election result strengthens our bullish view on safe-haven metals, but for now, the risk of selling from late-entry longs may weigh, together with silver's slump, as industrial metals take a beating
Currencies: The US dollar jumped quickly overnight as the US election results came in, with the pattern of very strong Trump showings in nearly every state quite clear. The action was relatively orderly as the US dollar has been generally advancing since early October in part on anticipation that Trump was set to win. Interesting to note that the Euro fell more than the Japanese yen among major currencies. The Mexican peso was especially weak, falling more than 3% versus the US dollar on concerns that Trump would implement tariffs on imports coming from Mexico.
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