Fed Rate Cuts, Labor Market Weakness, and Dollar Outlook (with Francine Lacqua)

Yields cautious down , medium term, interviewee explicit

explicit

NDX cautious down , short term, interviewee implicit

implicit

RUT

Oil

Metals

USD cautious down , long term, interviewee explicit

explicit

MUFG 7.0
Commercial Bank
Derek Halpenny 7.5

Fed Rate Cuts, Labor Market Weakness, and Dollar Outlook (with Francine Lacqua)

dxy

There is a bias into your hands for dollar selling. So we could get up to maybe 111-18, even 111-19 by the end of the year and you're a dollar. And then I think that opens us up for a break of 1120 next year. And by the end of next year we've got 124 for you a dollar. Expectation of Fed cutting more than priced in (3 cuts vs. market 2) leads to dollar weakness.

2 calls

+5

slightly better than random

ndx

Discusses vulnerability to a 'big equity market correction' specifically referencing AI-tech valuations and Oracle's sensitivity to bad news. Outlines scenario of a 25% S&P correction that is tech-led.

yields

the dot say one curse. the market say two. RVU is 3... they'll potentially cook three occasions. Based on weak labor market (no jobs growth for 6 months), sticky inflation that may be peaking, and a divided FOMC with a chunk looking for multiple cuts.

3 calls

+3

no reliable edge (random outcomes)

Introduces topic: Fed delivered third rate cut, outlook for one cut next year, markets unsure if dovish or hawkish.

Francine Lacqua
Derek Halpenny

The FOMC is divided. Inflation is sticky and the labor market is weak. Markets expected 2-3 hawkish dissents, got fewer. 8 of 19 FOMC members look for two cuts or more.
Derek Halpenny

Labor market is very weak. 6-month payroll average is 59k, essentially no jobs growth. Unlikely to pick up on its own. Risks are for more labor market weakness.

Inflation from tariffs may already be in the data. If goods inflation stabilizes, overall inflation could come down, making the FOMC more unified.
Derek Halpenny

K-shaped economy: top third benefiting from equities, bottom third with record low consumer confidence. Economy not humming as some believe.

Cites Trump's negative economic approval rating as evidence.
Derek Halpenny

Fed dots say one cut, market says two, MUFG view is three cuts next year.

Kevin Hassett (potential Fed Chair) won't have Powell's influence. Labor market weakness and inflation coming down provides scope for more cuts than the Fed projects.
Derek Halpenny

Vulnerable to a big equity market correction, which would prompt the Fed to do more.
Derek Halpenny

Dollar dropped yesterday. Bias for dollar selling. EUR/USD could reach 1.18-1.19 by year-end, break 1.20 next year, and reach 1.24 by end of next year.
Derek Halpenny

In a 25% S&P correction (AI-tech led), front-end rates would go down sharply. CHF and EUR would outperform USD, but AUD, NZD, CAD would suffer.

Tech-specific correction would hit Japan, Korea, Taiwan hardest.

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