The biggest known unknown for economies and financial markets is what will happen with tariffs – are they just being threatened as a bargaining chip for transactional purposes, if they come to fruition what will their breadth, size, and duration be, and will trading partners retaliate. Unfortunately for investors, the matrix of possibilities is endless, and each has a low probability chance. In this edition our asset class experts provide answers to the difficult questions.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Will Trump’s bite match his bark on tariffs? If it does, the economic damage could be severe but central bank responses are not clear cut in the short term. While Trump policy is the primary risk factor, there are many other question marks – Is the Fed finished the easing cycle? What happens with Canada politics? Will the ongoing rout in global bond markets continue? Is the USD destined to remain strong? – that are important for asset markets in 2025.

Participants:

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The BoC ended the year with another large rate cut but they are expected to SLOW the pace in 2025, while the Fed has already SLOWed down after an outsized move in September and seems locked in to deliver a regular size move tomorrow. The ECB should take it SLOW and the market is increasingly pricing a SLOW pace for the BoE. Central banks should proceed at a variable and uneven pace reflecting differences in macro fundamentals.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Simon Deeley (Desk Strategy), Canada Rates Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

We are approaching final central bank decisions of 2024 with uncertainty about ultimate outcomes, but clear differences across jurisdictions on where economies are headed. In Canada, soft growth data has solidified our expectation for a second consecutive 50bp cut despite firmer inflation data last month, while US economic exceptionalism has markets pricing a material possibility of a skip on the 18th. Across the Atlantic, the ECB is debating between 25bp and 50bp, while the BoE looks set to pass at its final meeting of 2024. Meanwhile, FX and equity markets have been impacted by the central bank pricing volatility, incoming Trump administration and the threat of US tariffs.

Participants:

• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

For macro and bond investors, 2024 has been challenging. Despite central banks cutting rates, bond yields have remained high, and country-specific macroeconomic factors have heavily influenced allocation strategies. Looking ahead to 2025, returns in global fixed income will largely depend on the trajectory of the U.S. economy and the extent of the Federal Reserve's easing measures. Macro nuances are expected to continue playing a critical role in cross country performance.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Su-Lin Ong (Research), Chief Australia Economist
• Robert Thompson (Research), Australian Macro Rates Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The ECB delivered another cut today and there is more to come, the BoC is primed to start cutting in 50bp increments and do a lot over the cycle, the Fed should cut further but only a little bit, and China has recently delivered a lot of stimulus. The RBNZ has recently cut 50bp and could follow up with materially more. But the outlier is the RBA who is sitting patiently and doesn’t appear ready to cut anytime soon. So while most centrals are moving in the same direction there is notable differences in the speed and magnitude of cuts across countries.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Su-Lin Ong (Research), Chief Australia Economist
• Alvin T. Tan (Desk Strategy), Asia FX Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The Fed delivered a super-sized rate cut to the start of the cycle last week. More likely they go back to smaller 25bp moves if labour data remains resilient. But another large move is not out of the realm of possibility. We think the BoC is on course for 5 straight 25’s but they could front-load with a 50bp move in October or December if growth data shows a large undershoot vs potential. The BoE and ECB seem set to take things slow, but a larger cut is a non-zero chance.

Participants:

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

With the Fed and ECB set to follow the BoC’s lead with 25bp cuts of their own, a number of the major central banks are now back in sync. So far, these central banks look to be proceeding gradually along their respective cutting paths, but the possibility of larger cuts still loom should economic conditions start to deteriorate. Meanwhile, others are proving even more cautious, with the next cut from central banks such as the RBA and BoE even further afield.

Participants:

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Su-Lin Ong (Research), Chief Australia Economist

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts