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Cuts vs. Curves: Where Easy Meets Sticky

  • Writer: Ahmad Mortazavi
    Ahmad Mortazavi
  • Oct 4, 2025
  • 4 min read

Updated: Oct 7, 2025

Central Banks are overfocusing on monetary policy


🌍Big Picture


  • Policy regime: The Fed has begun easing, the ECB is holding, and the BoE has slowed QT. Front-end yields are drifting lower, but the long end remains stubborn, keeping financial conditions only partially looser. That mix still favours carry trades (IG credit, stable cash-flow financials) and select rate-sensitives when long-end yields pause.

  • Growth & labour: U.S. labour indicators softened into late September, reinforcing a gentle cuts path. Europe’s growth is uneven—manufacturing shows early stabilisation while services cool, keeping the ECB in “watchful hold” mode. The UK backdrop remains fragile but not collapsing; mortgage affordability has improved on the margin as front-end rates edge down.

  • Inflation & the dollar: Disinflation continues, but services/core prove sticky enough to restrain aggressive easing. The dollar had a notably weak stretch into month-end before stabilising; its next leg will hinge on U.S. data continuity and FOMC minutes tone.

  • Commodities: Gold set fresh records last week and is consolidating near highs, supported by softer real yields, lingering policy uncertainty, and official-sector demand. Oil slid sharply on demand worries, refinery maintenance, and supply chatter, easing cost-push pressure but flashing slower global momentum.

  • Positioning & risk: Equity leadership remains narrow (quality/AI), but dips in yields continue to unlock rate-sensitives and high-quality carry. Implied equity vol is low relative to macro uncertainty; prime territory for barbell exposure (defensives + quality cyclicals) with disciplined risk controls.


📊 Assets at a Glance


Equities


  • US: S&P 500 and Dow near record territory; breadth still narrow, small-cap beta improving on cut hopes.

  • Europe: Flat to mixed; financials stabilising as curves steepen modestly; energy lags on weaker oil.

  • Japan: Consolidation as higher JGB yields rotate flows toward value.


Rates & Curves


  • USTs: 2-yr anchored to cuts path; 10-yr ~4.1–4.3% supported by term premium; modest steepening.

  • Bunds: ~2.6–2.8%; range-bound under ECB “hold & watch.”

  • Gilts: ~4.5–4.8%; slower QT relieves some long-end supply.

  • JGB 10-yr: ~1.6% multi-year highs; normalisation still gradual.


FX


  • DXY: high-97s to ~98; fades on soft U.S. data, pops on sticky inflation.

  • EUR/USD: 1.16–1.18 range; GBP/USD: 1.33–1.36; USD/JPY: 147–149 with scope for BoJ-driven yen squeezes.


Credit


  • IG: Spreads tight, demand strong for high-quality carry; new-issue concessions slim.

  • HY: Stable but growth-sensitive; prefer BB/short duration over weakest cyclicals.


Commodities


  • Gold: ~$3,850–3,900/oz, consolidating just below last week’s record.

  • Oil: Brent ~$64–68 / WTI ~$61–64, capped by demand softness and refinery maintenance.

  • Copper: Sideways; sensitive to China’s post-holiday activity.


Crypto


  • Bitcoin: ~$115–120k, liquidity-sensitive consolidation;

  • Ethereum: firm on institutional demand; beta to broader risk tone.




📅 Key Events Next Week


Mon, Oct 6: Eurozone Retail Sales (Aug) / China post-holiday liquidity


  • Bull: EZ sales stabilise → European cyclicals bid, EUR firms; Asia reopens smoothly after Golden Week.

  • Bear: Sales slip again → defensives lead; Bunds bid; FX ranges favour USD; China reopening shows thin liquidity.


Tue, Oct 7: Germany Factory Orders (Aug)


  • Beat: Supports “mfg bottoming” narrative → DAX/industrials bounce; Bund yields edge up.

  • Miss: Recession chatter returns → duration bid; EUR soft; financials tread water.


Wed, Oct 8: Germany Industrial Production (Aug) / FOMC Minutes (Sep meeting)


  • IP beat + dovish minutes: “Soft landing + easy Fed” → equities up, gold steady-higher, USD softer, curve steepens.

  • IP miss + hawkish minutes: Growth scare + stickier Fed → equities wobble, USD/USTs up, gold dips.


Thu, Oct 9: US Weekly Jobless Claims / ECB Speakers & Accounts flow-through


  • Claims higher trend: Confirms labour cooling → cut path intact; duration bid; USD softer; gold firmer.

  • Claims drop: Cuts priced more slowly → USD firmer; equities rotate to cyclicals; gold consolidates.

  • ECB tone shift: Any dovish hints support EU financials and periphery; hawkish notes lift EUR and weigh on duration.


Fri, Oct 10: University of Michigan (Prelim Oct Sentiment & Inflation Expectations)


  • Soft sentiment / lower 1-yr inflation expectations: Risk-on extension, yields softer at the front; gold holds highs.

  • Surprise strength / higher inflation expectations: USD pops; front-end reprices; equities fade at the margin; gold trims.


Sat, Oct 11: Weekend watch (OPEC+ headlines / China Caixin PMI timing)


  • Constructive oil guidance or China PMI beat: Cyclicals and EM FX get a boost into Monday; gold steady.

  • Supply increase talk or PMI miss: Oil capped; risk appetite cools; USD and gold both supported (risk-off hedge demand).


💡 Investment Idea: Gold


Thesis in one line: In a “front-end easing, stubborn long end” regime with lingering policy and geopolitical risk, gold’s asymmetric payoff (lower real yields, safe-haven demand, central-bank buying) supports keeping gold as a core allocation, augmented by simple tactical overlays around data and dollar swings.


How to access:


  • US: SPDR Gold Shares (GLD) or SPDR Gold MiniShares (GLDM, lower fee, smaller unit size).

  • UK/EU: iShares Physical Gold (SGLN / IAU equivalent in USD markets), or WisdomTree Physical Gold (PHAU).

  • For accumulation: periodic buys + add-on dips after stronger-than-expected US data or USD spikes.


Illustrative framework:


  • Core weight: 5–10% of liquid portfolio (strategic).

  • Tactical adds: +1–2% on dips toward the lower end of the current $3,850–3,900 consolidation band or after a hawkish data surprise (USD up, yields up).

  • Trim zone: Scale back +1–2% on squeezes to fresh highs if inflation expectations or USD reverse higher.

  • Risk controls: avoid leverage; consider pairing with short-duration bonds or quality defensives to dampen drawdowns.

  • Key catalysts: FOMC minutes tone, US claims trend, preliminary Michigan inflation expectations, any late-week OPEC+ headlines, and the approach to US CPI (Oct 15) the following week.


Bottom line: Gold remains a high-conviction portfolio ballast with tactical upside as policy eases at the front and uncertainty keeps hedging demand elevated. For more detailed analysis and an easy-to-implement investment action plan, just check https://www.scientiacapital.co.uk/recipes


Risk Disclaimer


The information provided in this analysis is for informational purposes only and should not be considered financial advice. Financial markets involve substantial risk, and investments can fluctuate in value, leading to potential losses. Past performance is not indicative of future results. Before making any investment decisions, readers should consider their own risk tolerance and financial situation. The strategies and opinions expressed are based on current market conditions and may change without notice.


 
 
 

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