Trade

In this report, we discuss why we are lifting our US recession probability from 60% to 65% and explain why China’s latest stimulus announcements are welcome, but probably are “too little, too late.”

Yesterday, the ECB solidified its recent dovish tilt in response to weaker growth and decreasing inflationary pressures. It is now set to cut rates 25bps each meeting. How low will the ECB deposit rate ultimately go and what does this imply for yields and the euro?

The US election underscores three long-term trends of Generational Change, Peak Polarization, and Limited Big Government. Investors should expect more volatility around the election and should assess the results before adding more risk. While we predicted the October surprise from the Middle East, more surprises are coming before the final vote is cast.

Western policymakers are pursuing three capital “T” Truths: China is evil, climate change is a major risk, and Russia is… also evil. Pursuing all three priorities at the same time presents a version of the classic “impossible trinity.”

Markets are rallying on Fed rate cuts and China stimulus but there will also be October surprises ahead of the US election, which Trump could still win. Russia’s conflict with the West is escalating and the Middle East is destabilizing further. Investors should favor US bonds but they should add some risk in emerging markets in response to China’s policy turn.