Investment Institute
Visión de mercados

Pre-emptive vs Reactive

KEY POINTS
The Fed is ready to act aggressively, but they may not have to.
The Euro area recent dataflow helps with the September cut, but hawks are calling for a cautious approach.
This week may be decisive for French politics.

The early August equity market shock may already feel like a distant memory, but some key market metrics have changed over the summer: the expected trajectory for the Fed is now much more dovish. Jay Powell in Jackson Hole chose not to stick to a cautious, gradualist approach, making it plain that the Fed has “ample” room for manoeuvre to act and will not necessarily wait for more obvious signs of a downturn to cut aggressively. Yet, while we know that the Fed is ready to support the economy decisively, it is still not obvious it will have to. The August payroll, out this Friday, will be important of course, but so far unemployment benefits claims remain tame, consistent with the notion that the ongoing rise in the unemployment rate is essentially driven by the supply-side, while the dataflow on economic activity in Q3 remains decent. We stick to our view the Fed will cut only twice this year, albeit with a significant risk of a third one. Meanwhile, Kamala Harris’ lead in the polls may have contributed to taking US 10-year yields under 4%, since her victory would probably usher in a less spendthrift fiscal policy than Donald Trump’s, and of course less tariff hike. It remains a very tight race though.

Paradoxically, while the ECB chose not to wait for the Fed and cut in June already, its messaging has become very cautious on the next steps since then. The latest dataflow should however make a September cut easier. Yet, we note how prudent some influential board members such as Isabel Schnabel remain. They have of course a point on inflation – the good news is very recent – but we are more concerned on the risks for growth than they are. For now, the nice rebound in purchasing power triggered by the wedge between wage growth and inflation is not being spent by households. If one adds to the mix slower global demand and the prospects of fiscal restriction, we think the ECB should not take too much time to bring the policy rate closer to neutral, but that is a normative view, and we need to pay attention to the hawks’ signals. We do not expect more than three 25bp cuts in total this year. 

Finally, the political process in France may be finally moving on after a long summer break, but whatever the name of the new Prime Minister, policymaking is likely to remain delicate in Paris.

Download the full article
Download Macrocast #237 (670.54 KB)

    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.