Investment Manager’s Daily Market Outlook: Rate Cut Bets Rise on U.S. Confidence Drop
The unexpected decline in U.S. household confidence has sparked renewed interest rate cut bets, pushing Treasury yields, the dollar, and stock futures lower. Rate futures now suggest an 80% chance of a 50 basis point cut by the Federal Reserve after the November election.
Following a positive auction of new Treasury paper, two-year yields are nearing 3.5% for the first time in two years. This has led to a ‘bull steepening’ of the yield curve, with the gap between 2-year and 10-year yields widening to over 20 basis points.
The drop in confidence came from the latest consumer survey by the Conference Board, showing the biggest decline in three years amid concerns about the labor market. This has also prompted global interest rate cuts, with China slashing its medium-term loan rate by 30 basis points.
While overseas investors are cautiously optimistic about China’s actions, concerns about the property market remain. In Europe, business surveys indicate a contraction in business and manufacturing, raising expectations of a third ECB rate cut. Wage pressures in the euro zone are easing, allowing for further policy easing.
Central banks in Sweden and Australia have already cut rates, while the Bank of England remains cautious. In the U.S., new home sales data and corporate earnings reports from Costco and Micron Technology will provide further direction to markets.
Overall, the global economic landscape is facing challenges, with central banks taking proactive measures to stimulate growth. Investors should keep a close eye on developments in the labor market, consumer confidence, and central bank policies to make informed investment decisions.