The Fed finally reduced its rates by 50 basis points: investors are relieved. Commenting1 on this decision, President Jerome Powell estimated that the US labor market was “solid” and that the Fed did not think it would be behind in reducing rates.
Par Dan Scott, Head of Vontobel Multi Asset
In brief
- With the first rate cut by the US Federal Reserve (Fed) having passed, investors’ attention should now be focused on the Chinese economy, as well as the approach of the US presidential election.
- We believe that increased fiscal risks will eventually require policy action or a change in the macroeconomic environment.
- The Vontobel Investment Committee has decided to reduce its exposure to American and European equities, while increasing its exposure to Swiss equities, whose defensive qualities should enable outperformance in the event of a slowdown in economic growth.
Change of scenery
The Fed finally reduced its rates by 50 basis points: investors are relieved. Commenting1 This decision, President Jerome Powell estimated that the US labor market was “strong” and that the Fed did not think it would be behind in reducing rates.
This decisive turning point in US monetary policy is part of a broader trend of synchronized easing by the world’s main central banks. The European Central Bank (ECB) and the Swiss National Bank (SNB) have, in fact, already reduced their rates for the second and third time, respectively, as concerns about inflation fade. This easing aims to support the resumption of global economic growth.
In China, a key driver of global gross domestic product (GDP) growth, authorities, under pressure to meet their 5% growth target for the year, have taken stimulus measures to boost the economy2. They include interest rate cuts, lower mortgage rates, credit support for banks and relaxed rules for home buyers in some major cities. This sparked optimism and a rally in the Chinese stock market, especially as investors were concerned about a deflationary spiral3. In mid-October, all eyes will therefore be on the Chinese GDP data for the third quarter.
After the Fed’s first rate cut, attention is also focused on the US presidential elections. The Kamala Harris-Donald Trump showdown is already capturing global attention and its outcome is expected to provide the economic and geopolitical backdrop going forward.
To cover these elections in their final phase, our November issue will be a special “Mini Investors’ Outlook” edition. This edition will focus on the essentials, as the situation can evolve quickly, especially when such important events are on the horizon. We have therefore brought forward the publication date to offer this issue by November 4. After the elections, we will host a webinar to analyze the outcome and its implications for investors. Stay tuned for more details in the next issue.
In this issue ofInvestors’ Outlookyou will discover an in-depth analysis of fiscal policy and public debt, as well as our views on equity markets and commodities.
We are ready for the fourth act of the year and to adapt to the changing market scenario.
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