Dovish Rate Cut in September Likely to Impact Market Trades, Citi Strategists Say
In a recent note, Citi strategists emphasized the increasing likelihood of a dovish rate cut by the Fed in September, following testimony from Powell and the release of June CPI data. This indicates that the market may prioritize dovish FOMC trades before shifting focus to election-related trades.
The strategists pointed out that while most Trump trades may have to wait until after the Fed cut, the steepener trade could benefit from both a dovish Fed and election trades. They also noted that positioning for the outperformance of US equities over Europe could be considered earlier, though French equities have not seen the same rebound as other French assets post-election.
Additionally, expectations of a Trump presidency could reinforce the fundamental case for a downside in oil, according to Citi's oil strategists. They are bearish on oil for 2025 due to fundamental reasons, and believe that a Trump presidency could further impact the trade with tariffs potentially undermining demand.
The Fed's concern about the labor market, along with low inflation prints, further support the expectation of a rate cut in September, the strategists believe. They anticipate a "dovish cut" in September, with the Fed trade likely to precede the full impact of the Trump trade.
In summary, the market is gearing up for a dovish rate cut in September, with potential implications for various trades and asset classes. It is important for investors to stay informed and consider their positions in light of these developments to make informed decisions about their finances.