Head of Saxo Strats
Summary: The Fed has stepped in with what the market considers policy support while the key risk event remains the upcoming G20 summit in Buenos Aires this weekend.
The below statements are the official wordings by the Fed chair over the two events.
October 3: “We may go past neutral. But we’re a long way from neutral at this point, probably”
November 28: “Funds rate is just below the broad range of estimates of the level that would be neutral for the economy”
A lower interest rate trajectory is short-term positive for equities and based on yesterday’s speech we are revising up equity returns post- the G20 by two percentage points across all three scenarios. The Fed’s new stance will also likely strengthen the US' negotiation hand in case the G20 leads to nothing.
Three rate hikes discounted in financial markets on top of the tariffs hike to 25% from 10% on the latest $200bn would have been toxic to equities. It would have given the Chinese a good hand against Trump in Q1 as their stimulus is working through the economy with likely effect in Q1. We are not changing the probabilities for the G20 outcome and still believe a no deal is the most likely scenario.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
