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Thoughts From The Divide: The Door is Wide Open

BY JON WEBB
Last week, we flagged Bill Dudley’s abrupt change of mind: he now advocates immediate rate cuts. One might be forgiven for suspecting Bill had spent the week lobbying his old colleagues because the July 31st FOMC statement, and J Powell’s subsequent presser gave rates markets quite the boost. Of course, there were the usual Powell caveats: “If we were to see, for example, inflation moving down quickly - or more or less in line with expectations - growth remains reasonably strong, and the labor market remains consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting”. But judging from SOFR pricing, the market took Powell’s caveats as mere teasing. Powell’s presser comments suggested maybe 50bps of cuts by year-end, but Dec 25 SOFR pricing suggests at least 75bps. Read more →

C8 Hedge – Currency Compass – Manage Currency Balances with C8 Hedge – June 2025

BY JON WEBB
All corporates and asset managers hold cash balances, to cover upcoming outgoings and, in reserve, an excess balance, for example, in case of fund redemption.  A corporate or asset manager will build excess balances as they randomly accrue in various currency accounts, we propose managing these cash balances in a more systematic way. As regular readers will know, C8 Hedge is designed to add value to the FX hedging process by modelling key drivers of FX markets: fundamental, trend, carry and value.  Importantly, these key drivers can be just as easily used to optimise cash balances. Hold excess cash in currencies that are likely to appreciate on a total return basis (combining spot movement and interest carry). Read more →

Thoughts From The Divide: Adjustments

BY JON WEBB
Last week’s excitement in bond markets came courtesy of Governor Waller offering a mechanical rationale for rate cuts. Simply, “If inflation goes down, you would lower the policy rate.” This came, of course, in the context of warnings about financial conditions and other caveats, but as is so often the case, what the markets heard was “so you’re telling me there’s a chance?”. That doesn’t mean that we disagree with the market’s read of where the Fed’s head is. Fed Governors don’t make too many boo-boos with their messaging, and when they do, it’s often an error of timing rather than content. The market has now priced cuts down to “around 4% by the end of 2024” and while that seems perhaps overdoing the enthusiasm a tad, we suspect that the market has gotten the gist about right.  Read more →
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