Gill: Fed will Cut Rates Twice This Year
So then was just giving us an overview not just of the Bank of England, but also what central banks around the world are doing. And I wonder to what extent central banks around the world are taking their cue from the feds. We had the Rick’s bank cut rates yesterday. We had the SMB already start with their rate cutting cycle. People are talking about the ECB next potentially the Bank of England. Is it just that other central banks, you know, can’t keep waiting for the Fed forever to get going essentially? Well, I think the debate is pretty similar for most of them. It’s where their economies sit on that balance between inflation and growth and particularly where they are on inflation. And Europe, I think is a slightly different story. I mean, we’re off to view that the ECB may actually have more room to cut before the Fed, but that’s because inflation is less of a challenge. I think that’s why we saw the Swiss National Bank card, the Riggs Bank, you know, obviously more recently. But the Fed, we think will be less in less of a hurry. And that’s purely about inflation, yeah. And the fact that growth we think is still holding up a little bit better than certainly we expected at the start of the year. Yeah, perhaps you should have kept Van on because he sort of ended his commentary with his view that at the US dollar is actually going to be not as strong as the market is anticipating. But if the Fed do indeed end up keeping rates higher for longer, what does that mean for the USD, to your mind? Well, in our mind, it’s about first stronger than weaker. So I think eventually we end up at the same point. We think that the Fed will cut indeed in the second-half of the year and that should bring the dollar down. But we may very well have a window in the middle where we start to see Europe and Central Bank cuts more meaningfully around June. We think the ECB will cut and that we think creates a window for a bit of dollar strength, which may see obviously a weaker euro, a weaker sterling, a weaker Swiss franc before we eventually get to that Fed rate cut. So a slightly different short and long term view. Yeah, so the next big indicator for markets is going to be that USCPUSCPI prints coming up next week. And I just wonder how the market would react if you got a hot CPI print in conjunction with that weak NFP print last Friday. Well, at face value that doesn’t sound like a great combination. But what I will say is that let’s not forget that historically inflation tends to be a lagging indicator through a cycle 1 tends to see growth indicators. The labor market usually soften first with inflation being on the last data points to turn. So I think the Fed A will be quite fixate on the month and month inflation number, but it’s not just CPS about the entire dashboard of inflation numbers. I think the labor market is quite key because we start to see softening there, particular on wage growth on unemployment. Often that can be a lead indicator for inflation. So the markets might take the positivity from labour market a little bit more. So in terms of where you’re putting money, I see you are overweight equities, underweight cash and neutral bonds. So talk me through the thesis there. Sure, Well I we started really holding the line there. So we started the year, we think it’s still about equities and the fact that earnings are supporting equities and without sufficient bad news, we still think equities, you know as they generally do outperform bonds and cash. So we think we’re still in that soft landing environment where the feds really not slam the brakes, the labor market’s not fallen off a Cliff yet. So we think that’s environment where equities continue to do very well. Now bonds we think is a slightly longer term story. We still really like the yield on offer. So we’ll be taking advantage of of the yield to really lock that in long term, but perhaps that performance might take a little bit longer to come through. Still a better place than cash where we think, yes, cash yields are attractive today, but you have a reinvestment risk there. Yeah, Yeah, obviously if central banks start cutting, let me just ask you about something that has emerged. And just in the last couple of days, I thought it was interesting that ARM stock underperformed so much in after hours trading down 10%, not because of their earnings, but because of their outlook and the guidance. And I think that’s going to be key as well for the direction of travel from here because the semiconductors, AI, all of that hype has been such a big driver of returns for the US stock market in the last 12 months. If there are warning signs there, what is that boat for the broader market? Well, in the short term that can be a source of concern. But you know what I think is really interesting is when you look at consensus expectations for the rest of this year, at the start, the years all about technology, Magnificent 7, that’s where the growth comes from. But by the time you get to Q4, actually more of the growth comes from outside of the Magnificent 7. So that earnings expectations is really about a broadening out of the rally. So we need that for market gains to sustain. And look, this is something you have to monitor an ongoing basis, but that’s really where some of our optimism is also supported by.