Goldman Says Global Rate-cutting Cycle Bodes Well For US Dollar

Economic

Summary:

The Fed is expected to make its first rate reduction this week, joining the European Central bank, the Bank of England and and others that have already started easing policy.

The downside risk to the US dollar posed by the Federal Reserve’s (Fed) coming interest-rate cuts is limited because other central banks are easing policy, too, according to an analyst from Goldman Sachs Group Inc.

In fact, such synchronised cycles of rate cuts are usually associated with a stronger dollar, the currency analyst, Isabella Rosenberg, wrote in a note to clients. She based that on an analysis of rate cuts since 1995 and the degree of policy coordination among the developed nations.

“If most central banks are easing together, we can expect that to limit the degree to which Fed easing will weigh on the dollar,” she wrote. “While the market is pricing a faster Fed pivot, we still think other central banks would ease policy more if the Fed gave them the space to do so.”

The Fed is expected to make its first rate reduction this week, joining the European Central bank, the Bank of England and and others that have already started easing policy.

The dollar has been under pressure lately as traders prepare for the Fed’s first move, which in theory should weaken demand for the currency by giving investors less incentive buy US debt.

Such a dynamic has played out when the Fed has been out of sync with other major central banks, typically resulting in a weaker — or flat — dollar, Rosenberg said. But in this case, US rates remain relatively high and the drop in other countries saps some of the incentive to sell the dollar in order to buy assets elsewhere. Such coordinated global rate cuts can also signify economic-growth concerns that bolster the dollar, given its status as a safe haven.

“Explaining dollar performance using a single variable — the direction of Fed policy in this case — is not usually very successful,” she said. “Clearly, the relative backdrop for foreign exchange matters much more.”

Source: The edge markets

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Cohen

Economic

Former Federal Reserve Bank of New York president William Dudley said there’s scope for a half-point rate cut at the central bank’s meeting .

“I think there’s a strong case for 50,” Dudley said on last Friday at a forum organised by The Bretton Woods Committee in Singapore. “I know what I’d be pushing for.”

Dudley, who led the New York Fed until 2018, is a Bloomberg Opinion columnist and now chair of the Bretton Woods Committee.

The former Fed member cited a slowing US labour market, with risks to jobs greater than lingering challenges to inflation, in supporting his call for a half-point reduction. He also highlighted Fed chairman Jerome Powell’s comments at Jackson Hole last month, underscoring not wanting to see further weakness in labour.

Dudley’s remarks come even as data earlier showed core US inflation unexpectedly picked up in August, reinforcing expectations for a quarter-point cut. Dudley previously said he expected a 25-basis-point reduction.

“The question is why don’t you just get started?,” Dudley said. “It’s basically up to chairman Powell to see how much support he has for being more aggressive.”

Some Wall Street banks were outliers to a 25-basis-point rate cut expectation this month, expecting a more aggressive Fed move. After the most recent inflation data, economists at Citigroup Inc scaled down their bet to a quarter-point cut. The bank kept its call for a total of 125 basis points of easing this year.

Markets and economists remain at odds for the trajectory of US monetary policy this year. US swaps data is currently pricing in more than 100 basis points of cuts this year, as expectations grow that the economy could dip into a recession and will need more support.

Earlier this month, Fed governor Christopher Waller said he’s “open-minded” about the potential for a bigger rate cut and would advocate for one if appropriate.

“It’s very unusual to go into the meting with this level of uncertainty — usually the Fed doesn’t like to surprise markets,” Dudley said.

Source: The edge markets

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Samantha Luan

Stocks

Four of the five best-performing Asian equity benchmarks this month are from the region, with Thailand leading the pack. The buying frenzy has put foreign inflows on track for a fifth consecutive week while the MSCI Asean Index is now trading near its highest level since April 2022.

Fuelling enthusiasm about markets from Indonesia to Malaysia is the relatively light positioning by foreign investors, supportive local policies, as well as attractive valuations. These advantages have set the stage for the region to capitalise on global investors’ shift away from larger peers like China, particularly given economic woes deepening in the world’s No 2 economy.

“Asean has been ignored for so long,” said John Foo, the founder of Valverde Investment Partners Pte Ltd. “Investors are beginning to wake up to the many alpha opportunities available, from the commodity companies in Indonesia to the stable real estate investment trust market in Singapore to the tech plays in Malaysia, and the export plays in Vietnam and numerous recovery plays in Thailand.”

A key source of bullishness about Southeast Asia is the relatively light positioning in the market by foreign funds, who have room to expand their allocations. Valuations also look attractive, with the MSCI Asean index trading at 13.6 times its 12-month forward earnings estimate. That’s compared to a five-year average of 14.7 times.

Recent positive policy catalysts such as Indonesia’s fiscal easing initiatives and measures in Thailand and Malaysia that favor stock ownership are helping too, according to Kenneth Tang, a portfolio manager at the Nikko AM Shenton Thrift Fund. The countries also benefit strongly from high representation of interest-rate sensitive and high-yield sectors from banks to property developers, he added.

Those factors have boosted Asean’s strength, with the index outperforming the MSCI Asia Pacific Index by about 14 percentage points since the start of July.

Brokerages are taking note. Goldman Sachs Group Inc upgraded Thailand to 'market weight' from 'underweight' this month on expectations that the country’s new state-controlled Vayupak Fund will provide “both sentimental and liquidity support, attracting foreign capital back to the market”, the banks’ strategist Timothy Moe wrote in a note. Last month, Nomura Holdings Ltd upgraded Malaysian and Indonesian stocks.

“If interest rate cuts are here to stay and there’s no recession, this rally can extend towards the end of 2025,” said Chun Hong Lee, a portfolio manager at Principal Asset Management Bhd.

Source: Theedgemarkets

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[Quick Facts]

1. Trump safe after what FBI describes as an assassination attempt.

2. The U.S. raises tariffs on Chinese electric vehicles.

3. U.S. consumer confidence hits highest since May.

4. U.S. import prices post the largest drop in 8 months in August.

5. Bets on a 50bp rate cut by the Fed rise as Treasury yields decline.

6. ECB officials are cautious about rate cuts while remaining flexible.

[News Details]

Trump safe after what FBI describes as an assassination attempt

On Sunday, while former President Donald Trump was playing golf at a course in West Palm Beach, Florida, gunshots were heard. Trump was unharmed. The Federal Bureau of Investigation (FBI) has indicated that this appears to be an attempted assassination.

Law enforcement officials said at the afternoon press conference that the shooter was hiding in the bushes near the golf course. Secret Service agents, while clearing the hole Trump was about to play, discovered the barrel of a rifle protruding from the bushes.

The agents exchanged fire with the shooter, firing at least four rounds around 1:30 p.m., ET. The shooter then abandoned a rifle, two backpacks, and other items, and fled in a black Nissan vehicle. The sheriff stated that a witness saw the shooter and managed to photograph the vehicle and its license plate.

According to anonymous law enforcement sources cited by The New York Times and Fox News, the suspect is 58-year-old Ryan Wesley Routh from Hawaii.

The U.S. raises tariffs on Chinese electric vehicles

Regarding the U.S. decision to significantly increase tariffs on Chinese electric vehicles to protect its local industry, several car manufacturers exporting electric vehicles to the U.S. market have also taken targeted measures.

In August this year, Polestar Automotive announced that production of the Polestar 3 model officially began in South Carolina. The Polestar factory in South Carolina is dedicated to producing cars for the U.S. and European markets, complementing the production capacity of the Chengdu factory in China.

Additionally, Polestar 4 model is expected to begin production in South Korea by mid-2025. It is reported that Polestar will use the Renault Korea plant, in which Geely Holding Group has a stake, for production in South Korea, with vehicles destined for Europe and the U.S.

At the end of August, Qingfeng Feng, Chief Executive Officer at Group Lotus PLC, stated that the U.S. market is of strategic importance for Lotus, as the U.S. is the world's largest luxury car market. In response to the U.S. "tariff hammer," Lotus has re-evaluated its positioning, pricing, and product definition in the U.S. market. Consequently, Lotus has postponed the release of its new car in the U.S. by a quarter, with deliveries set to commence in the first quarter of next year. On September 12, Lotus announced that the ELETRE would enter the North American market, with prices starting at $229,900.

U.S. consumer confidence hits the highest since May

Joanne Hsu, Director of the Consumer Survey at the University of Michigan, stated that the consumer confidence index has risen to its highest level since May 2024, marking its second consecutive month of increase, up approximately 2% from August. This increase is primarily due to improved purchasing conditions for durable goods, which consumers perceived as more affordable.

Although views on the labor market have slightly weakened, expectations for personal finances and the economy have improved. The consumer confidence index is now about 40% higher than its low in June 2022. However, due to the significant uncertainty surrounding the upcoming U.S. election, consumers remain cautious. An increasing number of both Republicans and Democrats now expect Harris to win. The gap in consumer confidence between the two parties has widened due to differing views on the impact of a Harris presidency on the economy.

U.S. import prices post the largest drop in 8 months in August

In August, the U.S. import price index saw its largest drop in eight months due to falling fuel and food prices, indicating that domestic inflation will likely continue to ease in the coming months. The U.S. Bureau of Labor Statistics reported that the import price index fell 0.3% month-over-month in August, the largest drop since December 2023, following a 0.1% increase in July.

Over the 12 months ending in August, the import price index increased by 0.8% following a 1.7% rise in July. Data released this week showed a mild rise in both CPI and PPI in August, though underlying inflation remains somewhat sticky. The Federal Reserve is expected to begin a long-awaited easing cycle next Wednesday, with a 25 basis point rate cut almost certain. The market's expectation for a 50 basis point cut was dashed by labor market stability and still-warm core inflation.

Bets on a 50bp rate cut by Fed rise as Treasury yields decline

According to the CME FedWatch Tool, the probability of a 50 basis point rate cut by the Fed next week has increased from 28% to 43%. U.S. Treasury yields are expected to record a weekly decline. The latest CPI and PPI data supported expectations of mild performance in the PCE data at the end of the month, leading some investors to anticipate that the Fed will be more concerned about employment issues.

Meanwhile, The Wall Street Journal reported that officials are considering more aggressive monetary easing policies, as they believe inflation has been controlled and are concerned more about employment issues. The 10-year U.S. Treasury yield is trading around 3.657%, while the 2-year yield is at 3.598%.

ECB officials are cautious about rate cuts while remaining flexible

European Central Bank (ECB) officials are cautious about rate cuts, further indicating that the next rate cut will likely occur in December rather than October. Governing Council member Villeroy said on Friday that rate cuts must be very pragmatic. "We will not commit to any specific interest rate path in advance and will keep our options open for the next meeting."

Governing Council member Kazaks noted that a rate cut in October is less likely. However, if there is an unexpected economic shock, if the economy performs significantly weaker than current expectations, or if inflation falls notably, a rate cut could be considered.

Governing Council member Simkus also emphasized the need for "strategic patience" in formulating future policies, with services inflation being a key uncertainty. Governing Council members Vasle and Müller also highlighted this risk.

Governing Council member Nagel stated that the outlook is "very good," and the 2% inflation target is expected to be achieved by the end of next year.

Governing Council member Rehn mentioned that growth remains slow and that downside risks have increased over the summer, so flexibility in action and interest rate decisions will be maintained.

[Today's Focus]

UTC+8 15:30 ECB Governing Council Member Nagel Speaks

UTC+8 17:50 ECB Governing Council Member Vasle Speaks

UTC+8 20:30 U.S. New York Fed Manufacturing Index (Sept)

UTC+8 21:00 ECB Governing Council Members Holzmann and Vujcic Speak

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Goldman Sachs

Economic

Stocks

To investors looking for diversification, UK equities may present an opportunity. “Valuations are low, dividend yields are good, and there is less concern around concentrations risk,” says Lindsay Matcham, who works in futures sales trading in Goldman Sachs Global Banking & Markets.

“At a time when we find ourselves near all-time-highs in global indices, and with the FTSE 100 outperforming in the August sell-off, this makes the UK an attractive market,” Matcham adds.

Goldman Sachs Research forecasts the FTSE 100 to rise to 8,800 over the next 12 months, up from its present level of 8,256, as of Sep. 4. The index began the year at 7,721 and has registered a year-to-date rise of close to 7%. UK equities “proved resilient in the early August correction,” our analysts note. The UK’s robust year comes after over a decade of persistent underperformance: the UK weight in MSCI World has fallen to 2.2% from 5.3% in 2010.

Over the last 10 years, the FTSE 100 has delivered a 6% per annum total return, versus 8% for Stoxx 50, and 13% for the S&P 500. Some of this underperformance is due to weak earnings, domestic political upheavals, and the lack of a large listed technology sector, but much of it owes to a sharp decline in valuation as investors have shunned UK stocks. “The issue is not that foreign investors are refusing to ‘buy British,’” our analysts write. Foreign investors own around two-thirds of the UK market cap. Rather, the issue is “a dearth of home-grown equity investing.”

As a result, companies without buyers for their stock trade at a large discount to non-UK equity, and often look to buy back shares; in fact, the only net buyers of UK equities in recent years have been corporates via buybacks, and the total shareholder yield for the FTSE 100 is twice that of the S&P 500. Cash-generative companies in telecoms, energy, and financials, where valuations tend to be low, have been particularly active in buying back stocks. Private equity purchases of UK stocks is another source of demand, and this has continued to be strong in recent years, which is unsurprising given the valuation gap between private and public assets.

While the UK lacks large technology stocks, British equities in finance, energy, and mining offer diversification opportunities from the US markets. The latter have high valuations and are very concentrated in the tech sector. The FTSE 100 is also less exposed to tariff and trade restrictions. Several government initiatives – such as a pension review (which may eventually increase domestic investment in UK stocks) and a homebuilding policy – could benefit UK equities, according to Goldman Sachs Research.

Meanwhile, inflation is moderating in the UK, giving the Bank of England scope to lower interest rates, says Matcham. Two rate cuts are forecast this year. “We expect this disinflation to continue,” he says. “Growth has remained pretty robust in the UK, which is ultimately good for UK equities.”

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Kevin Du

Economic

A wall of debt, a financing crunch and plummeting building values are looming over commercial real estate, menacing investors and banks, but Goldman Sachs Asset Management is a buyer.

“Just because there are some problem properties with very high vacancies and a problem with their cost of capital or the cost of debt — that doesn’t mean that the entire asset class has something wrong with it,” said Lindsay Rosner, the head of multi-sector investing at the firm. “What we have been able to do is find a lot of opportunities in commercial mortgage-backed securities (CMBS).”

Rosner — who describes CMBS as a market that “people were nervous about” — is focused on “very special properties that are super desirable”. It pays to be picky as an across-the-board recovery in offices is unlikely with remote work persisting, she told the Bloomberg Intelligence Credit Edge podcast.

Goldman also sees value in the debt of industrial warehouses used for logistics, and prefers CMBS to corporate bonds, according to Rosner. Despite all the doom and gloom predicting the pandemic would lead to empty buildings and a slew of defaults, commercial property debt has managed to outperform that of investment-grade corporates this year.

“Relative value is really there,” she said, referring to CMBS. “It is a good portion of our portfolio, and we think it generates a decent amount of carry.”

Rosner is generally positive on the outlook for credit markets because “there is still yield”, and while the economy is softening, she sees the odds of a US recession at only about 15% to 20%.

In investment-grade debt, Goldman likes financial-sector issuers, which she said have outperformed on an excess-return basis.

“It’s not just US money-centre banks,” said Rosner, who focuses on public fixed income at Goldman. “There was an opportunity in French banks where there was uncertainty around the French election.”

Goldman is meanwhile steering clear of utility-sector bonds, based on the high cost of the green transition. “That is just going to place them in a different kind of balance sheet posture than we think is advantageous to being a bondholder,” said Rosner.

By ratings bucket, Rosner favours BBB rated companies, which have retained cash and not increased leverage. “Triple Bs are still a part of the market that we really like,” she said.

Rosner prefers shorter-maturity Treasury bonds given the likelihood of curve steepening after the US election.

“Neither candidate is running on a fiscal restraint programme,” Rosner said. “The Treasury curve could really steepen out,” she said, adding that maturities of three- to five-years look most appealing in that scenario.

Source: The edge markets

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SAXO

Commodity

Economic

Gold's recent strong performance, with a 20% rise year-to-date and a high of USD 2,531.75 in August, has been driven by a combination of factors that have made it an attractive investment. There are several reasons that the post-election environment could continue to support the gold price, which has handily outperformed the S&P 500 index and Nasdaq 100 index through early September of this year. As of 10 September, gold is up over 21%, while the S&P 500 index is up just shy of 15% and the Nasdaq 100 12.5%.

Fiscal profligacy

The uncertainty surrounding the upcoming US presidential election, which brings intense unease on the course of fiscal policy and overall market stability. First Trump and then Biden threw caution to the wind in blowing up the federal deficits in good times and especially bad (the pandemic response), with the US debt ripping above 120% of GDP. It doesn’t appear either party is set to deliver on fiscal austerity, which raises inflation risks, a gold positive. Trump wants to cut taxes with no credible plans for reducing spending, while Harris offers some new tax policy ideas and would like extend Biden’s huge fiscal programmes. Either administration would inevitably expand the deficit in an economic slowdown. And even if we have a president Harris or Trump with a divided Congress, meaning political gridlock, it means point 3 below – the Fed – has to work that much harder by easing policy.

General safe haven appeal

Gold has long been a safe haven in times of trouble and we could be nearing the end of an incredible run for stocks if we are headed toward a recession, something the bond market and its recent “dis-inversion” seems to be telling us. A dis-inversion happens when short term yields fall below long term yields, as the market expects the Fed to cut rates.

Fed rate cuts

As noted above, whether we are heading toward a slight slowdown or a full-blown recession, the US Federal Reserve’s monetary policy decisions will play a significant role in shaping gold’s trajectory. A rate-cutting cycle will begin this month at the Fed’s 18 September FOMC meeting, and a lower interest rate environment would likely boost gold’s appeal, especially if the Fed ends up cutting more than expected in coming months. Lower rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. Historically, gold has performed well during periods of falling interest rates.

Geopolitics and “de-dollarization”

Furthermore, the broader global environment—characterized by geopolitical tensions, de-dollarization efforts by central banks, and economic uncertainty—continues to underpin demand for gold. In particular, central bank purchases of gold and strong retail demand in key markets like China have helped sustain the shiny metal’s rise, as investors seek stability amid volatile economic conditions. There may be more of an angle here if Trump wins and he delivers on his huge tariff threats as a widening group of countries look to transact outside the US dollar system.

Overall, the combination of geopolitical risks, fiscal concerns, and potential shifts in monetary policy, particularly in the wake of the US presidential election, makes a bullish case for gold as a hard asset. Note the implications of the phrase “hard asset” gold should always be seen mostly as something that preserves its value than as something that will go significantly higher in real terms (beyond the rate of inflation). Investors are likely to continue viewing gold as a hedge against the uncertainties posed by both economic and policy forces.

Over the past decade, gold has provided an average annual return of 8.4% in U.S. dollars, consistently outpacing inflation. This makes it an attractive option for long-term investors seeking to preserve purchasing power.

US Election: Will Gold Win in All Scenarios?_1

How to invest or actively trade gold?

Physical gold: Purchasing physical gold in the form of jewellery, coins, or bars provides direct exposure to the metal but involves considerations such as secure storage, insurance, and higher trading costs.

Gold ETFs/ETCs: Exchange-traded funds or commodities offer a convenient way to invest in gold without holding physical metal. These products track gold prices closely and can be traded easily on exchanges.

Gold mining stocks/ETFs: Investing in gold mining companies or ETFs that hold a basket of mining stocks provides exposure to gold prices. However, these investments carry operational risks and may exhibit higher volatility compared to gold itself. In recent years, the combination of inflation and interest rate hikes to combat has left some gold miners have struggling relative to the price of gold amid rising costs towards financing, labour, and materials.

Spot gold trading: A leveraged product that may suit traders using risk management tools while long-term investors may find ETFs being the better option. At Saxo you can use leverage to trade on the price of gold against 12 different currencies – including US dollar, euro, yuan and Swiss Franc – and silver.

Before proceeding you need to consider your tolerance for risk, and time horizon, as well as your personal financial goals. Gold is considered a relatively safe precious metal to invest in, but the price still responds to changes in other markets such as the dollar and government bond yields.

When to enter a trade or investment is always a challenge, whether it’s a stock or a commodity like gold. With that in mind a staggered approach may be the best suitable way to enter into a new position, i.e.. split the purchase into smaller portions spread over a predetermined time frame.

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Goldman Says Global Rate-cutting Cycle Bodes Well For US Dollar

Source: The edge markets

Dudley Sees Case for Half-point Fed Rate Cut

Source: The edge markets

Global Funds Rush into Southeast Asian Stocks as Fed Pivot Play

Source: Theedgemarkets

September 16th Financial News

[Quick Facts]

[News Details]

[Today's Focus]

The Bullish Outlook for UK Stocks

Goldman Likes the Commercial Real Estate Debt Ttat Others Fear

Source: The edge markets

US Election: Will Gold Win in All Scenarios?

Fiscal profligacy

General safe haven appeal

Fed rate cuts

Geopolitics and “de-dollarization”

How to invest or actively trade gold?

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