As we review our 2024 outlook (published in Nov 2023), it’s evident that volatilities have materialized — perhaps a touch earlier than anticipated. Since early July, the Japanese Yen has staged a sharp rebound against the U.S. Dollar, moving from 161.951 (USDJPY) to its current level of 149. This currency movement has implications for global markets.
In the midst of this landscape, the unwinding of carry trades has been particularly brutal. We believe U.S. equity markets will continue to experience volatility in the lead-up to the US’s November presidential election.
According to CMEGroup's Fed Funds Futures Market, traders predict a 70% chance of a 50 basis point cut in September. In our view, one cut "good" (Goldilocks), two cuts "bad" (Fed's hand forced). We're pondering whether unwinding of carry trades or weak macro numbers are the primary culprit behind market spookiness.
We observed that the discussion has quickly shifted. Yesterday, the discussion was whether a September rate cut was coming or not. Today, the discussion is whether the rate cut will be 25 basis points of 50 basis points. Despite market positioning for increased certainty on rate cuts, ongoing domestic and international political surprises mean other uncertainties are rising.
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