This week George Goncalves, MUFG Head of U.S. Macro Strategy, discusses the market implications heading into and out of the recent US presidential election. In George’s view there are a couple schools of thoughts forming on how markets participants are looking to further position for a 2^nd Trump administration, one that also has Republicans in power in the Congress as well. In one camp, and the one that has worked thus far, has been the playbook from the 2016 Trump 1.0 election, where financials and the dollar rallied but rates sold off. George suggests that there is more than one path potentially ahead and that it will pay to remain open minded on what may happen to the economy, markets and overall policy.  In George’s views starting points matter and a lot of the Trump 1.0 trade playbook could be priced-in already. Overall, the fear of higher fiscal deficits and a resurgence in inflation could be misplaced if there is an honest effort to seek government efficiency and reduce spending. Lastly, George reminds us that “macro still matters” and that the economy remains very bifurcated and sensitive to financial conditions. The next administration is inheriting a stock market with stretched valuations and an economy that has benefited from government spending. Meanwhile, labor markets have been weakening in the private sector for quarters and that may not change until we get further clarity on how companies react to the changes in government and fiscal policies ahead.

This week George Goncalves, MUFG Head of U.S. Macro Strategy, provides an update to our latest house views on the Fed and US rates forecasts post the solid September NFP jobs report. Even though the team have doubts on the overall quality of the recent NFP reading and that one number does not make a trend. At face value it was a strong report and it will likely result in the Fed cutting at a slower pace. We are now expecting the Fed to deliver a 25bp cuts going forward and tweaked on our longer term rates forecasts. 

This week George Goncalves, MUFG Head of U.S. Macro Strategy, reviews the last major macro event that happened this past Friday, the Fed’s Jackson hole symposium. Specifically chair Powell’s opening speech acknowledged that the labor market cooling is unmistakably happening now (and in reality has been in our view for many quarters) and thus the Fed has pivoted to worrying about the jobs picture. As a result, chair Powell said the “time has come” to start adjusting policy rates lower (likely at the September meeting) to help combat further labor market weakness. Given that many of the conditions that have led up to this Fed pivot formed the basis for our house view for the better part of the year, we have not made major changes to our outlook for the Fed, economy, and markets. Prior to the event we already had increased our odds for larger rate cuts, where if the August NFP is weak, the Fed will likely start this easing cycle with 50bps. Meanwhile, this month has felt much longer than the typical August summer, George echoed back to another similarly long and volatile August, the August of 2007. George believes that the conditions are different to back then but the valuation setup is similar in terms of markets that are over-valued and sentiment very complacent. George argues that 2007 taught us to value liquidity and watch out for vol triggers.