Volatility to Stay Elevated on Data & Fed: 3-Minute MLIV

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00:00Am I going to have another busy week like last week?

00:02Can I just look forward to Turkey or is it going to be bumpy?

00:06I think, yeah.

00:07We're still very much in a toffee trading environment, I think is the headline.

00:12We talk a lot about the Santa rally into year end, then people get optimistic,

00:15but I think what's less appreciated is that there's also a seasonal component to volatility.

00:20So you see that it generally tends to decline into the Christmas period and into the summer.

00:26Now, in theory, that's a positive.

00:28I think the issue is, yes, you decline into Thanksgiving,

00:31but you don't really get more subdued volatility until the middle of December.

00:35So that's still a couple of weeks away.

00:37And you don't really have any use for seasonals unless there's a reason for them.

00:40And the reason that seasonals decline at that point in terms of volatility

00:43is because you have fewer central bank meetings, you don't get data coming out.

00:48And we have the opposite right now.

00:50We're getting an excess of data coming out.

00:52You also have the December Fed meeting where there's a lot of focus for that meeting

00:56because we're unsure of whether or not they'll cut or at least the market doesn't have a strong view either way.

01:01That pricing needs to shift into the meeting or at least, you know, if it comes down to the wire,

01:05you'll have the shift on meeting day.

01:07And that means that you're still in this kind of choppy environment

01:09because you're two seasonals that are supportive in terms of data and Fed aren't there.

01:14How much of the rally that we've seen so far and even arguably the rally we're seeing this morning

01:18is dependent on the Fed continuing to grease the equity market's wheels?

01:22In other words, how dovish does the Fed need to be to sustain the green on the screen?

01:27Yeah, I mean, I think it depends on what kind of time frame you're looking at, right?

01:31So if you have a Fed that doesn't cut in December, that's certainly not positive for equities into year end.

01:37I think, though, in the longer term, if the Fed keeps cutting towards 3%

01:41and the easing cycle that we're in currently, then that can be quite positive.

01:46We're not talking about this yet, but if you have a complete 180 on the Fed,

01:50as in we're not looking for any more cuts, we're starting to think about hikes into 2026,

01:54which I think is a real possibility when you think about the fact that we've had monetary easing.

01:58We're close to what could be a neutral rate in the U.S.

02:01You have fiscal easing that could get more aggressive into next year

02:04with talking about kind of helicopter money around $2,000 just being given out to U.S. Americans.

02:09If that happens, then I would start to get more concerned,

02:12or if it's inflation-led because for the equity market, it cares very much what's driving inflation.

02:18If it's gross inflation positive, then that's positive for equities.

02:22But if we just have inflation without the growth, then I'll start to get more worried, too.

02:27In terms of what else we're going to watch this week, how big a factor is the budget going to be?

02:31Is that the main event this week out of the U.K.?

02:33Yeah, I mean, definitely for the U.K. it's the main event.

02:36I think, though, I'm less pessimistic than generally people in the U.K. tend to be,

02:41or even the market is.

02:42We're very optimistic people.

02:44There's a lot of pessimism priced in, I think is number one.

02:48And I think what we underappreciate is that the government,

02:51while it may not be the smartest thing ever,

02:53they kind of test the market before releasing the budget.

02:55We had that test a couple of weeks ago.

02:57So there's no danger that guilt volatility translates into wider bond market.

03:01Oh, no, there definitely is that risk.

03:04But I think it's maybe less worrisome now that you've had the market tested once in the budget already.

03:09Okay.

03:10We are optimistic people, honestly.

03:13We just don't sound like it.

03:14Yes, we all saw that.

03:16We see that every day.

03:17We're still here.

03:17We'll see you.

03:18We're still here.

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