5 Top Fund Managers on US Fed Interest Rate 0.5% Decrease: Franklin Templeton “Widely Expected”, Manulife IM “3% in 2025”, First Sentier Investors “Bearish on US Economy”, Value Partners “Benefit Equities in Hong Kong & Southeast Asia”, Brandywine “Catch Up Mode & Should Have Moved in July 2024”
22nd September 2024 | Hong Kong
5 Top fund managers on United States Federal Reserve (Fed) interest rate 0.5% decrease – Franklin Templeton “Widely expected”, Manulife Investment Management “3% in 2025”, First Sentier Investors “Bearish on US economy”, Value Partners “Benefit equities in Hong Kong & Southeast Asia”, and Brandywine “Catch up mode and should have moved in July 2024”. In the FOMC meeting (18/9/24), United States Federal Reserve decreased the key central bank Fed interest rate by 0.5% (18/9/24) to 4.75% to 5% range (31/7/24: 5.25% – 5.5% range), targeting inflation rate at 2%. United States FOMC: “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.” See below for fund manager quotes from Franklin Templeton, First Sentier Investors, Manulife Investment Management, Value Partners and Brandywine.
“ 5 Top Fund Managers on US Fed Interest Rate 0.5% Decrease: Franklin Templeton “Widely Expected”, Manulife Investment Management “3% in 2025”, First Sentier Investors “Bearish on US Economy”, Value Partners “Benefit Equities in Hong Kong & Southeast Asia”, Brandywine “Catch Up Mode & Should Have Moved in July 2024” “
1) Franklin Templeton Institute Senior Market Strategist Rick J. Polsinello: “As was widely expected, today the Fed started down the path of easing monetary policy through interest rate cuts. Market pricing pre-announcement showed about equal probabilities of a cut of 25 basis points or 50 basis points, and their announced cut of 50 basis points brings the target Fed funds rate from 5.25-5.50% down to 4.75-5.00%. Worth keeping in mind that Fed funds being in the range of 5% is relatively high from a historical perspective, and assuming we’ve avoided recession and are headed for the soft landing, more cuts will be coming and the dot plot showed they expect rates to move lower by 100 basis points in 2024 and also another 100 basis points in 2025. The labor market has cooled but only modestly, and with unemployment under 4.3% and core inflation of 2.7% and likely heading in the right direction down to their 2% target, their dual mandate is looking intact and it appears the Fed is now equally focused on both price stability and maximum employment, after being hyper focused on inflation when the pandemic caused core inflation to move from 1.7% to about 5.7%. Another 50 basis points in 2024 to get to the 100 basis points of cuts expected means they could take off the next meeting, which is not until the day after the election, and get in the remaining half point at the last meeting in December.”
2) Manulife Investment Management Global Head of Macroeconomic Strategy Alex Grassino: “We suspect that such scares may indeed occur in the months ahead. If the US economy cools–and we maintain that it probably will–there may be future points at which some of the economic data surprises to the downside, potentially triggering a more aggressive policy response from the Fed. Consequently, our current expectation is for a further 75 bps of easing, which would bring the federal funds rate to 4.25% (upper bound) by the end of 2024. Looking to 2025, we now anticipate that the policy rate will reach 3% before the end of the year; we’d previously called for the federal funds rate to hit our estimate of neutral a couple of quarters into 2026.”
3) First Sentier Investors Head of Asian Fixed income Nigel Foo: “US economic data prints from the last couple of months have affirmed our bearish view of the US economy. In the days leading up to last night’s rate action, markets grew increasingly bifurcated in views of how aggressive the Fed would be in its policy trajectory, and sentiments seemed a bit more skewed towards a more bearish outcome in the real economy. At this juncture, after recovering from early August’s risk-off drawdown, the seeming calmness in markets is getting somewhat unsettling. A noteworthy observation is also that that we have also witnessed an uninversion in US treasury curve, where the yield spread between 2- and 10- year Treasury bonds have uninverted for the first time since 2006 to hit 8bps this month. While the Fed’s attention has been increasingly focused on labor market weakness, other economic indicators that we had been following are suggestive of an economy that is running low on growth momentum. Even with the Fed aspiring to achieve a soft landing, possibly via its higher than consensus 50bps cut last night, we cannot rule out the occurrence of a hard landing … … Given that we are only at the start of the rate cut cycle, we maintain our long bias in US interest rate duration that has been implemented in our strategies. If we were to compare current market rate cut expectations of ~250bps against historical magnitudes that have averaged between 300bps to 400bps, markets are not yet excessively pricing in future cuts from the Fed. The volatility that could play out more visibly from now could come from the US election and geopolitical events, both of which would warrant a dynamic approach to managing our duration and currency exposures. In credit markets, primary market supply has been picking up even as spreads come off the year’s lows, with investors digesting the supply with good appetite while yields remain at historically attractive levels. With favorable demand-supply dynamics in the Asia Investment Grade market, we maintain our bias for higher quality names and prioritize diversification in portfolios. We prefer issuers with the liquidity and resilience to withstand a hard global landing, should such a scenario emerge.”
4) Value Partners Chief Investment Office, Multi Assets Kelly Chung: “The expected rate cuts in the US will continue to benefit Hong Kong equities, as a large part of the territory’s sectors are interest-rate sensitive, including property, REITs, telecom, and utilities. However, investor sentiment toward Chinese equities remains lukewarm, given the country’s weak economic outlook. Southeast Asia will also benefit from the Fed rate cuts, and the region’s good earnings momentum has supported its equity performance. However, the rally’s momentum is diminishing amid the increasing volatility in the US market and its softer economic data. Meanwhile, investors have dialed back on their optimistic outlook on AI themes. We expect markets to continue to adjust their expectations in this space.”
5) Brandywine Global Portfolio Manager for Global Fixed Income & Related Strategies Jack McIntrye: “The Fed was in “catch up” mode at the September FOMC meeting by cutting rates 50bps. Chair Powell knows they should have moved 25bps in July, so add in 25bps at this meeting and you get to the 50bps rate cut. The combination of the Fed now having gained greater confidence that inflation is moving toward target and its strong commitment to maximum employment shows that a more prolonged and predictable easing cycle is at hand. It now will be a battle between market expectations and the Fed, with employment data—not inflation data—determining which side is right. Since this policy move was mostly telegraphed, there is no outsized move in financial markets. Now, everyone is back to data dependency.”
5 Top Fund Managers on US Fed Interest Rate 0.5% Decrease: Franklin Templeton “Widely Expected”, Manulife Investment Management “3% in 2025”, First Sentier Investors “Bearish on US Economy”, Value Partners “Benefit Equities in Hong Kong & Southeast Asia”, Brandywine “Catch Up Mode & Should Have Moved in July 2024”
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