🤑 The Fed: Another 25bp Rate Cut In The Bag!

Good Morning!

The markets are serving up quite a show this week. We're seeing record highs on Wall Street pulling global equities to all-time peaks with a robust 3.3% weekly gain. What's particularly intriguing is China's unexpected resilience – their blue chips have surged nearly 6% this week, seemingly shrugging off Trump's tariff threats. Germany's political drama is intensifying with Scholz's coalition crumbling after he showed Finance Minister Lindner the door. Meanwhile, the UK markets are taking a breather after the BOE's inflation warning put a damper on rate cut expectations.

In today’s email:

• FedWatch: Another 25bp cut in the bag

• Bitcoin: New highs, now sitting above $76k 💪🏼

• Vitol: Are metals the new oil? 

• Gold: Moving lower to $2680/oz on waning safe-haven appetite

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THE BIG IDEA

Fed delivers anticipated 25bp rate cut while signaling a potentially slower pace of future cuts, with markets adjusting to post-Trump election implications and higher terminal rate expectations

The Fed has just pulled the trigger on a widely anticipated 25-basis-point rate cut, bringing the federal funds rate to 4.5-4.75%. In a unanimous decision that marks a shift in monetary policy, the Fed's tone suggests we're entering a new phase of more measured rate adjustments. While they acknowledge policy remains restrictive, there's a clear signal that the pace of future cuts may slow as we approach neutral territory.

What's particularly intriguing is the post-Trump election market recalibration. Previously, markets were eyeing a bottom rate of 3-3.5% by summer, but Trump's proposed policies – including expanded tax cuts, heightened tariffs, and tighter immigration controls – have shifted expectations. We're now looking at a slower easing cycle with a higher terminal rate of 3.5-3.75%.

The plot thickens with the 10-year Treasury yield potentially breaching 5% in 2025, driven by fiscal sustainability concerns and inflation worries

This could act as a significant headwind for growth, especially impacting consumer and corporate borrowing costs. Chair Powell, while avoiding direct speculation on Trump's presidency, emphasised that monetary policy decisions will continue on a meeting-by-meeting basis.

December's FOMC meeting promises fresh economic projections that will offer crucial insights into their assessment of "Trump 2.0" implications. The Fed maintains its commitment to achieving maximum employment and 2% inflation, with risks to both goals currently balanced. However, the cooling jobs market remains a key factor, while the sharp move in longer-dated Treasury yields (80-90bp higher since September) could significantly impact growth trajectories.

For now, the Fed remains vigilant, monitoring labor market conditions, inflation pressures, and financial developments while keeping their options open for policy adjustments as needed.

MARKETS AT A GLANCE

TOP NEWS

Initial 'Trump Trade' enthusiasm cools as investors reassess the likelihood and impact of his promised tariff policies, while markets pivot focus to Fed policy and Chinese stimulus prospects

The post-election market sugar rush is wearing off. After initial surges in the dollar and Treasury yields, investors are pulling back to reassess Trump's ability to implement his ambitious 60% Chinese tariff plan. While U.S. stocks keep climbing to fresh records, the broader market's taking a breather to evaluate two key wildcards: the Fed's next moves and China's potential stimulus response.

Evercore analyst predicts significant S&P 500 rally under Trump's second term, citing rapid deregulation and corporate-friendly policies as key drivers

Get ready for another market surge, says Evercore's Julian Emanuel. He's eyeing S&P 500 at 6,600 by June – an 11% jump from current levels. His reasoning? Trump's expected sprint toward deregulation and corporate tax cuts. With the current bull run showing just 65% gains versus the typical 152%, Emanuel insists we're still in early innings.

World's largest energy trader Vitol signals strategic pivot towards metals trading, anticipating peak oil demand within a decade while eyeing opportunities in electrification-driven metals market

Vitol's CEO Russell Hardy is plotting a decade-long expansion into metals trading, particularly iron ore, copper, and aluminum. With oil demand expected to peak in 10 years, they're positioning for the electrification boom. The recent Noble Resources acquisition and strategic hires from Mercuria signal their serious metal market ambitions.

CRYPTO

Fed delivers expected rate cut while Bitcoin hits new highs as Powell asserts Trump's victory won't impact monetary policy decisions

With the Fed joining other central banks in monetary easing, Powell brushed off concerns about Trump's policies affecting Fed decisions, firmly stating he wouldn't resign under pressure. Markets loved it – Bitcoin touched $76,951, while stocks rallied, with tech leading the charge.

Major AI firms increasingly align with U.S. defense interests as Anthropic joins Meta in providing AI capabilities for national security purposes

Anthropic's Claude 3 and 3.5 models are being integrated into Palantir's highly secure IL6 platform for U.S. defense use. Following Meta's military-focused Llama deployment, this marks another tech giant entering the defense space. The timing aligns with Trump's national security emphasis for his upcoming term.

Binance Research reported that dApps reached $164 million in revenue in October, with trading bots and decentralized exchanges like Solana’s Photon driving growth

Top earners included DEXs like Uniswap, which generated $16 million. The report questioned whether blockchain infrastructure projects are overfunded, as dApp revenues and user adoption continue rising, signaling a shift in industry dynamics.

BlackRock’s iShares Bitcoin Trust (IBIT) saw an unprecedented $1.12 billion in single-day net inflows on Thursday

Fueled by market optimism post-Trump’s pro-crypto election victory and a 25-basis-point Fed rate cut, the 12 U.S. spot bitcoin ETFs collectively reported a record $1.38 billion in daily net inflows, showcasing a heightened institutional interest. Other major funds, including Fidelity and Grayscale, also posted strong net inflows, with growing momentum anticipated as rate cuts and regulatory optimism continue.

GOLD

Trump’s re-election is creating uncertainty in global markets, influencing gold prices in several ways

Historically, a Trump presidency has favored domestic industry and protectionist policies, which could lead to a stronger U.S. dollar and increase inflationary pressures. This scenario often negatively impacts gold, as a stronger dollar makes gold more expensive for foreign buyers. The market may also expect more aggressive Fed policies, such as slower rate cuts, which could curb gold’s appeal as a hedge against inflation.

DAILY ECONOMIC CALENDAR (ET)

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