From the studio

From the studio
Podcast: Investors Club – the US equity outlook with CIO's Matt Tormey (8 min)
Video: Buy equities on dips – Opportunities in a rate-cut environment(8 min)
Video: CIO Monthly – Kiran Ganesh on the AI rally and navigating market highs (3 min)

Thought of the day

Federal Reserve Governor Christopher Waller said Thursday he could back a larger 50bps rate cut in September if August jobs data show substantial weakness, though he currently favors a 25bps move based on current data trends. His comments follow remarks a day earlier from New York Fed President John Williams, who said “every meeting is, from my perspective, live,” and that the balance of risks was beginning to tilt more towards employment.

Two-year US Treasury yields have fallen to near 3.63% at print, while the spread between two- and 10-year yields remains fairly wide at around 57bps. At the moment, fed funds futures imply an 83% chance of a 25bps rate cut in September.

While upcoming data releases remain important, we see several reasons the case for easier policy may be gaining ground:

A softening labor market and economy provide scope to resume easing. Recent Fed commentary suggests that risks to economic growth are receiving increased attention. US GDP growth has remained subdued, with the economy expanding just 1.2% in the first half of the year and activity expected to remain soft. As the labor market cools, we believe downside risks to employment in particular may become a more prominent factor in the Fed’s deliberations.

Inflation appears manageable. The latest core inflation data has hinted that higher wholesale prices are beginning to feed through into US retail prices. We anticipate inflation will trend gradually higher as businesses adjust to increased costs. However, slowing shelter inflation and consumer resistance to higher prices may help offset some of these effects. We see core inflation rising by year-end to near 3.5%, only modestly higher than July’s 3.1% reading.

Fed speak, FOMC composition point toward a resumption of rate cuts. Williams and Waller are not alone in sounding more dovish on the rate outlook. Chair Powell’s commentary at Jackson Hole on labor conditions earlier this month also highlighted labor market softness and reinforced market expectations for potential policy adjustments.

We expect the Federal Reserve to begin reducing rates in September, with a total of 100bps of cuts expected over the next four meetings. We believe high-quality fixed income offers investors the opportunity to lock in higher rates than prevailing returns on cash, with potential for capital gains if policy becomes even more accommodative than expected. By diversifying portfolios with select medium-tenor quality corporate bonds, we believe investors can lessen the impact of potential market swings in riskier assets on overall performance. Gold is also expected to benefit from the outlook for lower real rates and ongoing geopolitical developments; our target remains USD 3,700/oz by end-June 2026.