The Santa Rally Is Wobbling: Markets in 3 Minutes

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00:00So let us dive into this question that we've been wrestling with for about 47 minutes now,

00:04which is why stocks are quite as risk-off as they are, because, you know, European futures are a

00:08little weaker, but Nasdaq futures down eight-tenths of one percent. Maybe there's a Bitcoin read

00:12across. There's the Japan story we've just been discussing in debt. I mean, what's your take on

00:18why things have started on the back foot in December? Yeah, I mean, I think it's really

00:23just a symptom of investor cautiousness, all of it. And so you get pieces here and there that are

00:27maybe negative news, but maybe the clearest sign of that investor cautiousness is the amount of

00:32money you're seeing in cash. So if you think about the amount of money in money market funds,

00:37that's actually reached an all-time high on some measures. And so that tells me that investors

00:42are very cautious. And it does mean that that money could move into risk, but there are a few

00:45reasons in the near term it's probably unlikely. The biggest reason is just we have so much data.

00:51And so you're likely to get pinged around on that data. We're also very dovishly priced for the

00:56December meeting from the Fed. It's pretty much fully priced for a cut. And you're going to get

01:00some forward guidance from that meeting that might skew a little bit more hawkish. I think the other

01:05point is that, you know, the cash yield is pretty good. So why not just park there until you get

01:10further into December or into the new year? And then finally, you haven't seen that flow become

01:16stretched yet. So people aren't rushing into money market funds. And so there's not a reason for that

01:21to kind of have a reversal. I think it does mean that once you get past this data and you have a

01:25clear view on the economy, there is cash that can go into risk, but we're just not quite there yet.

01:31Let's talk about Santa Claus. Is he going to show up? In order for him to show up and deliver a rally,

01:38do we need to see positive news? Or is it just the absence of negative news, i.e. stability,

01:42that gets Santa to show up on my doorstep?

01:44I think in this year in particular, you need some positive news to get Santa to show up on your

01:50doorstep. I mean, I would say that the Santa rally obviously is grounded in fact, in terms of you do

01:55tend to see a rally in the last month of the year. But it tends to be quiet. So low vol stops the time.

02:01Exactly. Exactly. You need to have some kind of fundamental reason for why that occurs. And it's

02:05because, you know, low vol, you tend to see you just go with whatever equities do, which is generally

02:09most of the time they go up. But because you have so much data now, you're not going to get that low

02:14volatility environment. So I think you need to be more cautious and you need to see those positive

02:18signs. And I'm just not sure you're going to get them because the number one driver that we've seen of

02:22equity markets recently has been your monetary policy view. And we're very dovishly priced there. And so I

02:27don't know how you get a terminal significantly lower than 3% without having economic data

02:31damaging that would also damage equities. Skylar, I'm in danger of having focused too much on the mag 7 in

02:372025 and not enough on the wider S&P or wider global stocks. And certainly over the weekend, I'm getting a

02:43reminder of that with lots of our stories talking about how some of the European stocks, in

02:48particularly Eastern Europe, some of those stock markets have done pretty well. I mean, what's your

02:52thinking on how European stocks have actually done pretty well when you look at the top 20 performing

02:59indexes over 2025? There's quite a lot of European names in there. And whether that's repeatable, whether that can

03:05continue? I'm a little bit more pessimistic there. I think generally equities trade together. So if US

03:10equities are up, then European equities are likely to be up as well. But I think there's a lot of

03:14optimism put into fiscal that was announced out of Germany in March. And there's this expectation

03:18that it would spread beyond Germany into other countries. And we haven't really gotten that.

03:23And the fiscal that we have gotten out of Germany, a lot of it's not directed in the same way to stuff

03:27that has a high multiplier as we were expecting. And so as I think we head into next year, that growth is

03:33more likely to disappoint in Europe as you don't get the big fiscal spend that's been priced in already.

03:37So the clock's gone to zero, but I've got time to ask another question. Don't ask me how that works.

03:43The dollar. What happens next for the dollar? You talk about the fact that we are quite

03:46dovishly priced on the Fed. And if we don't deliver upon that, do we get a stronger dollar?

03:51Because the dollar has been really important this year. The S&P in euro terms is up by 3.83%.

03:56The German market's up by nearly 20%. The IBEX is up by 41%. Europe has massively outperformed

04:02because of the currency this year. So what happens next year could be really important.

04:07If the Fed doesn't deliver, does the dollar go up?

04:11Yeah, I mean, absolutely. When I'm thinking about currencies, the number one drivers are

04:14growth and rate differentials. From a growth perspective, I think it looks quite good in

04:18the US right now. Yes, you've had the slowing of the labor market, but you're getting fiscal

04:21stimulus, you're getting monetary stimulus. You could get more next year. And that means you

04:26have more of a hawkish risk within your yield view. And so that means the rest of the yields

04:32are up, especially as I talked about with that terminal at 3%, unlikely to go lower.

04:36And then I think, too, you just haven't seen this mass exodus from the US market, right?

04:41AI means that you're still getting growth in the US. It also means that US equities are

04:45relatively attractive. The yield on a US 10-year or even bills at the front end is very attractive.

04:50And so that means people are still parking money in the US. And I think the story that we had

04:54beginning of the year where we had the end of US exceptionalism and people going out of the dollar

04:58and the US generally, you just haven't seen it in the flow data aside from kind of one week in April.

05:04Okay, one week in April. We remember it well.

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