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Fed Cuts, Stubborn Yields & Emerging Market Plays

  • Writer: Ahmad Mortazavi
    Ahmad Mortazavi
  • Sep 27, 2025
  • 4 min read

🌍 Big Picture


The policy regime has turned: the Fed delivered its first cut, the ECB stayed patient, and the BoE slowed quantitative tightening. Yet the long end of curves remains sticky, keeping financial conditions only partially looser. That combination supports carry trades (IG credit, quality financials/insurers), keeps gold near records as real yields grind lower, and leaves equities balancing softening growth against easier policy.


Growth & labour: The U.S. labour market has downshifted—payrolls are soft, unemployment is higher, and leading indicators point to slower hiring. Europe’s growth is choppy: manufacturing shows early stabilisation while services cool. The UK’s demand backdrop is fragile (consumer squeeze continues), but housing metrics are showing tentative improvement as mortgage rates edge lower. Japan’s normalisation remains gradual; higher local yields are nudging global factor rotations.


Inflation: Disinflation continues, but services/core remain sticky enough to prevent aggressive cutting cycles. Central banks want to “cut without losing credibility”, i.e., small steps, data-dependent.


Positioning & flows: Leadership is still narrow (AI/quality), but rate-sensitives (financials, select cyclicals) perk up on dips in yields. Credit remains well bid. Implied equity vol is low relative to macro risks—an environment that rewards barbell positioning (defensives + quality cyclicals) and disciplined risk management.


Key paradigm: We’re in a front-end easing/long-end resistant world. That’s bullish carry, supportive of cash-generative financials, constructive for gold, and selective for equities where earnings visibility is strong.



📊 Assets at a Glance


Equities


  • US: Near highs; breadth still narrow. Small-cap beta improving as rate expectations ease.

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

  • Japan: Consolidation as higher JGB yields spur rotations (growth → value).


Rates & Curves


  • USTs: 2-year anchored by cut path; 10-year ~4.1–4.3% held up by term premium; curve slightly steeper.

  • Bunds: ~2.6–2.75%; muted range as ECB stays patient.

  • Gilts: ~4.5–4.8%; slower QT eases supply pressure at the long end.

  • JGB 10Y: ~1.6% multi-year highs; BoJ gradualism intact.


Credit


  • IG: Spreads tight; new-issue concessions slim; demand strong for duration-balanced carry.

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


FX


  • DXY: High-97s to ~98; fades on soft US prints, pops on hot inflation.

  • EUR/USD: 1.16–1.18 range;

  • GBP/USD: 1.33–1.36;

  • USD/JPY: 147–149; watch for BoJ-driven yen squeezes.


Commodities


  • Gold: ~$3,650–3,700/oz, resilient near highs (lower real yields + hedging demand).

  • Oil: Brent ~$66–67 / WTI ~$62–63, capped by demand softness and refinery maintenance.

  • Copper: Sideways; tracks China’s activity signals.


Crypto


  • Bitcoin: ~$115–120k, consolidating after summer breakout; liquidity-sensitive.

  • Ethereum: Firm on institutional adoption; beta to broader risk tone.


Trader Patterns


  • Systematic funds moderately long equities and neutral-to-long duration.

  • Calls concentrated in AI leaders; put protection rising in cyclicals into data.

  • Buyback blackout pockets into quarter-end; rebalancing could favour duration if equities outperform.



📅 Key Events Next Week


Mon, Sep 29 : China Official PMIs (Sep), Eurozone Flash HICP (Sep)


  • Bull: China PMIs ≥50 and EZ core HICP ticks lower → EM FX steadies, copper/oil catch a bid; Bunds firm; European cyclicals outperform.

  • Bear: China PMIs <50 and sticky EZ core → growth scare; USD firms; gold outperforms; periphery spreads widen modestly.


Tue, Sep 30 : Germany Unemployment (Sep), US Conference Board Consumer Confidence (Sep)


  • Bull: German jobless steady + US confidence rebounds → supports cyclicals; yields up a touch; EUR/GBP firmer.

  • Bear: Soft confidence + higher German jobless → defensives lead, duration bid; USD stronger vs EUR/GBP.


Wed, Oct 1: Japan Tankan (Q3), US ISM Manufacturing (Sep), ADP Employment (Sep)


  • Bull: Tankan improves + ISM ≥ 50 + ADP tame → “soft-landing” vibe; equities up, small caps/industrials lead; curve steepens; USD mixed.

  • Bear: Tankan weak + ISM <50 + ADP hot → stagflation worry; equities wobble; USD stronger; gold bid; front-end reprices cuts slower.


Thu, Oct 2 : US Weekly Claims, Eurozone Unemployment (Aug), OPEC+ chatter (if any)


  • Bull: Claims edge up (labour softens) + EZ unemployment unchanged → cut path intact; duration bid; gold firm; oil stable.

  • Bear: Claims drop sharply + EZ unemployment rises → muddled trade (growth vs. risk); equities mixed; dollar firmer; oil still capped by demand.


Fri, Oct 3 : US Non-Farm Payrolls (Sep), Avg Hourly Earnings, Unemployment Rate


  • Bull (risk-on): NFP ~75–125k, jobless up a tick, earnings ≤0.3% m/m → seals gentle cuts; equities rally (rate-sensitives shine); USD and real yields ease; gold extends.

  • Bear (risk-off): NFP >200k and earnings ≥0.4% → delays cuts; USD pops; yields jump (front-end > long-end); equities fade; gold dips.

  • Left-tail: NFP <0 or unemployment spikes → recession scare; bonds rip; defensives and gold outperform; cyclicals/EM under pressure.


Weekend, Oct 4: G20 Communiqué / China Caixin PMI (if released)


  • Bull: Cooperative tone + PMI ≥50 → Asia open risk-positive; cyclicals bid; USD softer.

  • Bear: Fractious tone + PMI <50 → risk aversion into Monday; gold bid; USD firmer.



💡 Investment Idea


Itaú Unibanco Holding S.A. (NYSE: ITUB) is Latin America’s largest private bank (Brazil-based) with leading retail, SME, and corporate franchises. Listed in the US via a liquid ADR (ITUB), widely accessible to retail investors.


Why now:


  • Macro tailwind: Brazil’s easing cycle lowers funding costs; as policy rates drift down, net interest margins and credit demand typically improve with a lag.

  • Resilient core earnings: Strong fee income (cards, payments, asset management), robust risk controls, and best-in-class return metrics for an EM bank.

  • Currency kicker: A stable-to-firmer BRL alongside Fed easing supports ADR performance in USD terms.

  • Capital returns: Healthy payout and potential buybacks provide downside cushioning.


Set-up:


  • Entry approach: Accumulate on dips during US data volatility (e.g., post-NFP swings).

  • Targets: +15–25% over 3–6 months on sustained margin tailwind and credit normalisation.

  • Risk controls: Size modestly; use a stop ~10–12% below entry; consider a partial BRL hedge if USD spikes.

  • Key risks: BRL depreciation, commodity-linked macro shocks, credit cycle turns, political noise.


Bottom line: ITUB offers a high-quality EM lever to a gentler global policy path, rate-sensitive, liquid, and supported by durable profitability. 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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