Macro Dragon: 2020 is Half-life for the Fed... Likely 1 cut by 1H20 (Special Sun Edition)

Macro Dragon: 2020 is Half-life for the Fed... Likely 1 cut by 1H20 (Special Sun Edition)

Macro 2 minutes to read
Kay Van-Petersen

Global Macro Strategist

Summary:  Macro Dragon = Daily Cross-Asset Global Views

In this Macro Dragon, KVP touches on what he feels is one of the most important points in 2020 - the fact that if the Fed has to do anything, its more than likely to be in the 1H of the year given the elections. Plus, KVP thinks there is likely at least one 25bp cut by E-1H (likely 10 Jun 20)


(Note that these are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations.)

 

2020-Jan-12

Macro Dragon: 2020 is Half-life for the Fed... Likely 1 cut by 1H20 

 

Before we get into it, for those that are back – or on the way back in – from what was hopefully a restful year-end holiday break, Happy New Years!

Let me sincerely (hand on liver) wish you, your families & teams the best of 2020. May your health, vigor & experiences be excellent & full of fun + laughter. May you continue to grow & develop yourself. May you be awash in gratitude & contribution plus fall [tail] backward into more money than Bezos.

We’ll be shaking things up from KVP’s side, so expect a lot more trade views going forward, as well as 20 long-term trades views for 2020 – which KVP will do a special piece & mini-series on.

Ok let’s get after it…

On the Fed…2020 is a half-life


Listen closely KVP will say this… only about 8 more times – given we have 8 scheduled Fed meetings this year…

To start off as a summary there were 3 cuts last year taking us from 2.25-2.50 to the current 1.50-1.75, this post 5yrs that saw 9 hikes (+1x in Dec 2015, +1x in Dec 2016, +3x in 2017 & +4x in 2018).    

As discussed with some of our VIP clients, KVP’s view is that for 2020 the Fed has a half-life.

If they are going to make any rate decision, it is likely going to be prudent for them to move in the first 6m of the year – given that 2nd half will be all around US elections.

They would not want to get caught up in playing favorites one way or another – whether or not they explicitly state this is beside the point, this is human nature plus saving potential embarrassment & stress (path of least resistance). Obviously with US elections being on Nov 3 – the Fed could still do something on the Nov 5 & Dec 16 meetings.  

Currently KVP is a touch skeptical on the consensus 1H economic bounce, we’ll know once we are through 1Q20 whether or not globally it’s a symmetrical real bounce or not – yet think we most likely see at least one cut from the Fed in 1H20.

That would likely at the min. come on Apr 29 (yet more likely Jun 10) as that would have given us 6 full months since the last cut on 30 Oct 19 & 9 months since their first cut on 31 Jul 19 – i.e. rationale being here, that would have given them enough time to see whether or not their cuts were having the desired effect. Or to put  it differently, they would have paused for enough time to really gauge whether further cuts are warranted. 

Obvious risk to this, is if consensus is spot on - & note consensus tends to be right overtime, the contrarian inflection points are actually really few & far between… they are just sexier to talk about & be about… “I am going against the crowd” good luck! The vast majority of the time the crowd wins… there are likely more dead contrarian trade views than there are people who have ever lived on the planet – then we get a big bounce, including in China's economy, that leads the Fed to be comfortable on sitting on the sidelines.

And obvious risk to them cutting earlier are worse than expected deceleration from the US economy.

No doubt if we do get a Phase One Deal Break-off in 1Q/2Q this year, folks will re-calibrate the Fed’s potential pathway.

Before we lay out the meetings of the Fed, its worth noting one thing that is definitely not consensus – and that is a hawkish Fed for 2020 & for global central banks in general.

Federal Reserve 2020 Schedule Rate Decision Dates:

 

  • Jan 29 KVP: Likely to be “yawn” will be about press conference & minutes, yet key risk if they indicate bringing down liquidity 
  • Mar 18 + Potential Forecasts Updates + KVP: could start to see some dovish delta
  • Apr 29 KVP: this marks +6m from last cut & +9m from first cut in 2019
  • Jun 10 + Potential Forecasts Updates + KVP: likely at least 1 cut in 1H20, just to be safe
  • Jul 29 KVP: Fed on Sidelines given US Elections
  • Sep 16 + Potential Forecasts Updates + KVP: Fed on Sidelines given US Elections
  • Nov 5 KVP: This will be 2 days post the election, again Fed likely sidelined
  • Dec 16  + Potential Forecasts Updates + KVP: Fed could get final tweak on the year

 

What We Are Reading From SaxoStrats:

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.