How to trade a soft landing
- STOXX 600 up 0.1%
- Autos lead, Media sector lags
- BoJ keeps rates unchanged, begins unwind of ETFs
- Wall St futures flat
HOW TO TRADE A SOFT LANDING
The Fed's rate cut this week was pretty well telegraphed, with only one dissent (Trump's latest governor pick Stephen Miran), and balanced guidance, which leaves the future policy path somewhat uncertain.
Markets are pricing in about 100 basis points of cuts by July next year. Stock, bond and currency performance over the coming months will depend on the economic conditions during the easing cycle.
"Clearly, it is important to distinguish between soft and hard landings," writes Citi global head of macro Dirk Willer.
"While we fully understand the difficulty to distinguish between the two early on, the combination of decent data outside of the labour market ... and the strength of risky assets (both equities, and, even more so, credit) pushes us to favour a soft landing," Willer adds.
Looking forward, Willer believes that equity strength can persist, even if the labour market remains soft.
"The reason why we are not that worried about it is that decent growth with weak employment suggests a productivity improvement, which should be equity positive," Willer says.
Reprinted with permission of Citi Research. Not to be reproduced.
(Samuel Indyk)
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EARLIER ON LIVE MARKETS
STOXX INCHES UP, HEADS FOR SMALL WEEKLY GAIN CLICK HERE
EUROPE BEFORE THE BELL: FUTURES HOLD AS HECTIC WEEK DRAWS TO A CLOSE CLICK HERE
BOJ HOLDS, WITH A HAWKISH TWIST CLICK HERE
