US Election Night Volatility, Q4 2024 Global Credit Conditions: Easing Policy Rates Amid Persistent Conflicts And Wall Street Skepticism

In the U.S., traders are bracing for heightened volatility, fueled by election-driven uncertainty and questions about the sustainability of current financial policies.

This combination of factors has generated intense interest in credit markets, as investors seek clarity on the Fed’s stance amid mixed signals from economic data and shifting global dynamics.

In the final quarter of 2024, global credit markets face a complex landscape marked by easing policy rates, persistent geopolitical tensions, and rising skepticism from Wall Street's top executives regarding the Federal Reserve’s policy path. While central banks have been gradually loosening monetary policy in response to slowing growth, market sentiment reflects a cautious outlook as major conflicts continue to simmer, threatening economic stability.

The coming months will likely test the resilience of both credit and equity markets, with investor focus split between potential growth opportunities and the need to hedge against ongoing volatility.

US Election Night: Traders Braced For Volatility And Volume

Volatility and High Volume

Wall Street’s traders, bankers, and investors geared up for an event that promises to bring heightened volatility and intense trading activity across various markets. With eyes fixed on bond, currency, and even cryptocurrency markets, financial firms have ramped up preparations, from organizing late-night shifts and securing hotel rooms for suburban staff to halting non-essential software updates that could risk disruption.

Preparing for Overnight Market Movements

Historically, election night brings significant shifts in trading volume and price swings, especially in overnight markets. Vikram Prasad, Citi’s global head of credit trading, stated, “I will be glued to my screen.” Like Prasad, many Wall Street professionals are taking a cautious approach, coordinating across teams to monitor markets closely as results unfold. Initial activity will center on bond and currency markets, with stock futures providing more reliable signals closer to the morning when the New York Stock Exchange (NYSE) opens.

A notable change since the last election is the growth of the cryptocurrency market, which operates around the clock. Analysts anticipate that crypto could play a larger role in post-election trading, allowing for a 24-hour outlet for investor reactions.

Expected Volatility and Market Pricing

Ahead of election day, options markets have already priced in a potential swing of up to 2.2% in the S&P 500, according to data from the Cboe Global Markets Volatility Index. Treasury and currency volatility indices, such as the ICE 美国银行 Move index, have also surged, reflecting the elevated levels of uncertainty surrounding the election’s outcome and the potential for a contested result.

Goldman Sachs is taking steps to ensure preparedness, with Richard Chambers, the bank’s head of repo and macro trading, coordinating shifts for his teams. “We want everyone to try to get some downtime, then be ready to turn on their engines for the long haul late Tuesday evening,” he explained. Key information, Chambers noted, could start trickling in around midnight, with market reactions possibly intensifying between then and the early hours of the morning.

Managing Market Risk and Infrastructure

To avoid system stress during anticipated high volume, banks have been careful to bolster liquidity and reduce risk exposure. Many firms have also temporarily frozen non-essential system changes and updates. “I don’t think the election is going to stress out the system?… the markets are resilient, and the infrastructure is there,” said Patrick Murphy, a partner at market-making firm GTS.

Alongside these technical safeguards, market makers are also cutting back on high-risk positions to keep liquidity high. According to Prasad, “We’ve spent a lot of time cleaning up our inventory and our own positions in order to be as neutral as possible.” His goal, along with other Wall Street traders, is to stay nimble and adapt quickly to the unpredictable moves expected on election night and in the days that follow.

Lessons from Past Elections

While short-term traders will be on high alert, some longer-term investors are urging caution. Ed Al-Hussainy, a senior rates analyst at Columbia Threadneedle Investments, US, advised against reacting too quickly to initial price movements, describing them as “almost always a head fake.” He pointed out that while equity markets initially tumbled following Trump’s 2016 victory, they quickly rebounded, underscoring the potential for rapid shifts in sentiment.

At JPMorganChase, the head of positioning intelligence, John Schlegel, CFA, confirmed that many clients had been scaling back high-stakes positions in the lead-up to the election. “In the past couple of weeks, there has been a reduction in some of the Trump trades that had already made some profits, as well as overall taking off risk or adding to some hedges,” Schlegel said.

What’s Next: The Fed Decision on Interest Rates

Adding to this week’s anticipation, the Federal Reserve is set to announce its next policy move on Thursday, just in two days after the election. With a rate cut widely expected, traders will need to rapidly shift their focus from election results to the Fed’s monetary policy, further intensifying what promises to be a high-stakes week.

For Wall Street’s seasoned traders, however, high-volatility events are part of the job. Election night, followed by a key Fed decision, will offer an opportunity for those on the trading floors to navigate a complex and fast-moving environment, where every price swing could signal a new trend—or a temporary reaction.

https://www.ft.com/content/8fce4fc5-c2e7-474a-9053-55c749aca88a

Global Credit Conditions Q4 2024: Policy Rates Easing, Conflicts Simmering

Global Economic and Markets Outlook Q4 2024

As we approach the end of 2024, the global economy is characterized by a mix of resilience and vulnerability. Key factors influencing this outlook include easing monetary policies, ongoing geopolitical tensions, and sector-specific challenges. This article looks at the current economic landscape, credit conditions, and market trends.

Global Economic Growth

1. U.S. Economic Landscape: The U.S. economy continues to demonstrate strong growth, primarily driven by robust consumer spending and productivity gains. However, forecasts indicate a moderation in growth rates as interest rates stabilize at higher levels than those seen before the pandemic. The resilience of the U.S. consumer has been a crucial factor, but rising costs and potential economic headwinds could impact future spending.

2. European Recovery: Europe is experiencing a gradual recovery, although it remains slower compared to the U.S. High inflation rates and energy costs are significant challenges that dampen consumer confidence. Nevertheless, expectations for a rebound are growing as economic conditions begin to improve.

3. China's Economic Slowdown: China faces substantial challenges, particularly from its struggling property sector, which has significantly hindered overall economic performance. Analysts predict that without substantial reforms, China’s growth may continue to slow, contributing to global economic headwinds.

Monetary Policy Dynamics

Central banks worldwide have begun easing monetary policies after a prolonged period of rate hikes:

- Interest Rate Cuts: Central banks are expected to implement rate cuts, but the pace will vary across different jurisdictions. The risk remains that rates may settle at higher terminal levels than anticipated, which could lead to increased market volatility and sustained high borrowing costs for weaker borrowers.

- Market Reactions: The anticipation of rate cuts has led to fluctuations in sovereign bond yields, with many investors adjusting their expectations for future returns.

Credit Conditions and Default Rates

The credit landscape shows signs of resilience despite ongoing challenges:

- Default Rate Trends: The speculative-grade corporate default rate is projected to stabilize around 4.5% by March 2025. Upgrades in credit ratings are currently outpacing downgrades across most sectors, indicating an overall improvement in credit quality.

- Refinancing Activity: A significant portion of bond issuance among speculative-grade issuers has been for refinancing purposes, which has alleviated some liquidity pressures.

Geopolitical Risks

Geopolitical tensions continue to pose significant risks to global markets:

- Trade Protectionism: Increasing tariffs on Chinese goods and protectionist measures in Europe are straining trade relations between major economies. This environment may prompt businesses to diversify their supply chains away from China.

- Conflict Impact: Ongoing conflicts, such as the Russia-Ukraine war and tensions in the Middle East, contribute to market volatility and uncertainty regarding government responses.

Sector-Specific Insights

1. Real Estate Market Pressures: High interest rates and falling valuations present significant challenges for both commercial and residential real estate sectors globally. The U.S. office market is particularly vulnerable due to shifts in work patterns.

2. Technological Vulnerabilities: Increased reliance on technology heightens exposure to cyber threats, which could disrupt business operations and financial markets.

3. Climate Risks: The transition towards a net-zero economy introduces both opportunities and challenges for businesses. Increased frequency of natural disasters exacerbates supply chain disruptions while necessitating significant investments in sustainable practices.

The Outlook for the Quarter

The outlook for Q4 2024 reflects a blend of cautious optimism amid ongoing uncertainties. While certain regions like the U.S. exhibit resilience, global uncertainties—including geopolitical tensions, structural economic challenges, and evolving credit conditions—demand careful navigation by stakeholders. As we look ahead to 2025, understanding these dynamics will be crucial for informed decision-making across sectors.

Key Takeaways

- The U.S. economy shows strong growth but may moderate as interest rates stabilize.

- Europe is recovering slowly amidst high inflation; China faces significant economic challenges.

- Central banks are easing monetary policies with varying impacts across regions.

- Geopolitical risks remain high, affecting trade relations and market stability.

- Sector-specific challenges include pressures on real estate markets and technological vulnerabilities.

These takeaways highlight the importance of monitoring economic indicators and geopolitical developments as we transition into 2025.

https://www.spglobal.com/_assets/documents/ratings/research/101605658.pdf

Top Wall Street Execs Are Getting Skeptical On The Fed’s Easing Path

Top Wall Street Executives Raise Concerns Over Federal Reserve’s Easing Path Amid Persistent Inflation Pressures

As the Federal Reserve Board edges forward with policy rate cuts, major Wall Street leaders are voicing increasing skepticism, questioning the Fed's current easing path amid what they perceive as entrenched inflationary pressures. Despite widespread anticipation of further rate reductions, several prominent executives from financial giants such as Goldman Sachs, The Carlyle Group, Morgan Stanley, and BlackRock expressed doubts at Saudi Arabia’s Future Investment Institute (FII) (fii-institute.org) last week. They argue that ongoing economic and geopolitical shifts will likely keep inflation at levels that could complicate the Fed's goal of hitting its 2% target.

Inflation Remains Sticky as Rate Cuts Continue

The latest U.S. consumer price index report shows a modest 2.4% increase in September compared to the previous year, down slightly from August’s 2.5% rise. While this signals a slowdown in price growth, many executives remain unconvinced that inflationary pressures will abate significantly.

"Inflation is stickier," commented Franklin Templeton CEO Jenny Johnson. "You look at the kind of jobs and wage reports in the U.S., and it's going to be hard for inflation to come down to the 2% level." Johnson added that she expects only one more rate cut this year, contrary to the Fed's projections of additional reductions.

Goldman Sachs CEO David Solomon echoed Johnson’s sentiments, warning that inflation could become more embedded in the economy than market participants currently predict. He acknowledged that price rises may not spiral, but they could remain persistent enough to act as a significant economic headwind, especially if inflationary policies remain unchecked.

Jobs Growth Slows, But Markets Stay Upbeat

October’s jobs data showed U.S. job creation slowing to its weakest pace since late 2020, a development that could normally dampen markets. However, investors seemed unfazed by the news, possibly due to disruptions in both labor and climate impacting nonfarm payrolls. Meanwhile, Wall Street’s resilience continues, with major indices remaining near all-time highs, and equity markets experiencing strong inflows.

Apollo Global Management, Inc. CEO Marc Rowan (wikipedia.org/wiki/Marc_Rowan) questioned the timing of the Fed’s rate cuts, noting that ample fiscal stimulus continues to support a robust U.S. economy. Rowan pointed to the Inflation Reduction Act, the CHIPS Act, and increased defense production as measures that keep the economy buoyant, even amid rate hikes. “We’re all talking about shades of good,” Rowan said, reflecting on the apparent disconnect between rate cuts and economic strength. “The stock market is at a record high, no unemployment, capital market issuance at will, and we’re stimulating the economy?”

A Divergence in Market Outlooks

While central banks globally have been gradually reducing rates to support growth, some Wall Street executives remain unconvinced. Morgan Stanley CEO Ted Pick (morganstanley.com/about-us-governance/operating-committee/ted-pick), addressing the FII attendees, argued that the era of “easy money” and ultra-low interest rates is firmly behind us. “The end of financial repression — of zero interest rates and zero inflation — that era is over,” he said. According to Pick, geopolitical factors will play a larger role in shaping economic policy, signaling a more complex environment for years to come.

BlackRock CEO Larry Fink also weighed in, highlighting that inflation is now a more permanent fixture of the economy, fueled by onshoring policies, tariffs, and large-scale public spending. “We have government and policy that is much more inflationary. Immigration and onshoring come with costs that are rarely questioned,” Fink said. He noted that historically, the U.S. aimed to keep costs low for consumers, but policies focused on economic nationalism could drive inflation.

Market Reactions Ahead of the Fed’s Next Move

According to CME Group’s FedWatch tool, there’s a high probability—98%—that the Fed will implement another 25-basis-point cut in November, followed by a 78% chance of an additional reduction in December. Yet, the lack of confidence from Wall Street’s top executives suggests that the market may brace for unexpected adjustments to the Fed’s policy path in the coming months.

The divergence in views on inflation and rate cuts indicates the growing uncertainty among financial leaders regarding the U.S. economic outlook. Many appear to agree that inflation will continue to present a challenge, even if economic growth remains stable. As the Fed navigates these complex dynamics, investors will need to monitor both inflation indicators and market sentiment closely, as global economies adjust to the shifting policy landscape.

https://www.cnbc.com/2024/11/04/top-wall-street-execs-are-getting-skeptical-on-the-feds-easing-path.html

Conclusion

The global economic and financial outlook as we close out 2024 presents a delicate balance of growth, uncertainty, and risk management.

Key drivers include easing monetary policies, but with mixed sentiments about their impact amid persistent inflation and geopolitical risks.

The U.S. economy remains resilient, with consumer strength and government initiatives supporting steady, though moderating, growth. Yet, this landscape is complicated by looming election-driven market volatility and the uncertainty surrounding federal policies. Europe’s recovery is slower, constrained by high inflation and energy costs, while China’s economy struggles with internal challenges that could weigh on global economic stability.

Central banks began cutting rates, but questions about the long-term effects remain as inflation proves more "sticky" than anticipated. Wall Street executives are increasingly skeptical of the Federal Reserve’s easing path, pointing to inflationary pressures and fiscal stimulus that could hinder the Fed’s goal of a 2% inflation target.

Geopolitical tensions, particularly trade protectionism and ongoing conflicts, further add complexity to the economic landscape. The credit market remains cautiously resilient, but default rates and refinancing pressures will need careful monitoring as conditions evolve. Sector-specific vulnerabilities—particularly in real estate, technology, and climate impact—underscore the need for nimble risk management strategies.

As we transition into 2025, businesses, investors, and policymakers will need to navigate these intertwined dynamics with both caution and adaptability. The period ahead will likely test the resilience of global markets and economies, demanding informed, strategic approaches to both protect against volatility and seize emerging opportunities amidst a rapidly evolving economic environment.

Sources: SPGlobal.com Cnbc.com Ft.com

Federal Reserve Board Goldman Sachs The Carlyle Group BlackRock fii-institute.org Future Investment Institute Morgan Stanley Franklin Templeton Apollo Global Management, Inc. CME Group Citi nyse.com/index S&P Global Cboe Global Markets GTS Columbia Threadneedle Investments, US JPMorganChase Financial Times CNBC Bank of America Future Investment Initiative

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