总结下来，花旗发现，美股通常表现良好，但上涨的持续性取决于经济疲软是否导致政策宽松重启；美债利率在周期暂停或结束时通常上升；对于美元，如果降息只是暂停，美元表现横向，如果是最后一次降息，美元会上升；暂停之后，无论宽松周期是否持续，黄金价格通常都会走高。Citi Research found that during the period when the Federal Reserve pauses interest rate cuts, the U.S. stock market usually performs well, but the sustainability of the rise depends on whether economic weakness leads to a restart of policy easing; U.S. Treasury rates usually rise at the pause or end of the cycle; for the dollar, if the interest rate cuts are only paused, the dollar performs laterally, if it is the last interest rate cut, the dollar will rise; after the pause, regardless of whether the easing cycle continues, Gold prices usually rise.
Last week, the Federal Reserve released a hawkish signal, and the market expects the Fed to pause interest rate cuts in January. What does this mean for major asset classes?
On December 19, Citigroup's Global Macro Strategy team, including Analyst Dirk Willer, analyzed in a report the performance of macro assets during previous periods of pause in easing cycles, distinguishing between a pause and the end of an easing cycle.
In summary, Citigroup found that US Stocks typically perform well, but the sustainability of the rise depends on whether economic weakness will lead to a restart of policy easing; US Treasury yields generally rise at the pause or end of the cycle; for the USD, if the rate cut is merely paused, the USD exhibits sideways performance, while if it is the final rate cut, the USD will rise; after a pause, whether the easing cycle continues or not, Gold prices usually rise.
Bullish for US Stocks in the short term, but the long-term outlook depends on whether easing will resume.
According to Citigroup, when the Federal Reserve pauses or ends interest rate cuts, risk assets typically perform better, but the sustainability of the rebound depends on whether economic weakness leads to a resumption of policy easing.
For the S&P 500 Index, in the case of a pause, Stocks will rise but will only be sold off after about a month. This is because further easing is likely due to worsening economic data, which may put pressure on Stocks. In contrast, if the pause proves to be the final rate cut, the rebound in US Stocks is more lasting, although the dispersion of returns is greater.
Historically, only during the pause in interest rate cuts in 1989 did the S&P 500 briefly rebound and then correct by 10%. In 1998 and 2003, after the end of the easing cycle, the S&P's rebound lasted for three months. Citigroup stated that overall, the data is constructive for Stocks at least in the short term.
Bearish for US Bonds.
According to Citigroup, for fixed income investments, pausing interest rate cuts typically leads to an increase in yields.
As shown in the figure below, the initial phase of pausing interest rate cuts results in a higher rise in yields, whereas the impact of rate cuts at the end of the easing phase initially has a smaller effect on yields but then shows a more significant increase, for example, yields may rise by 50 basis points within a few months.
Overall, this research is not optimistic about the outlook of US Treasury yields, further confirming Citigroup's current strategy of underweighting US rates in Global Asset allocation.
Ending interest rate cuts is Bullish for the USD.
Citigroup's research shows that compared to the pause in interest rate cuts, ending interest rate cuts is overall more Bullish for the USD.
If at the end of an easing cycle, the USD will remain strong, but if it is just a pause, the USD tends to fluctuate. As shown in the figure below, a pause often leads to USD Index (DXY) Range trading, while if confirmed as the end of an easing cycle, the USD will have a larger increase.
Bullish on Gold.
Research shows that regardless of whether the easing cycle continues, Gold prices usually rise.
The figure below shows that Gold prices generally trend upwards, even at the end of an easing cycle. This study broadly supports Citi's bullish stance on Gold based on central bank demand.
During the pause in rate cuts, US stocks will still outperform European stocks.
During the pause period, the relative outperformance of US Stocks compared to European Stocks generally continues, but it is very unstable. If it is at the end of the easing cycle, US Stocks show a significant pullback relative to the Europe Stoxx 50 Index, but overall also presents sideways fluctuations.
Small Cap Stocks outperform Defensive Stocks.
Citi pointed out that if the pause is confirmed to be the end of the easing cycle, small-cap stocks will perform better than defensive stocks.
As shown in the figure below, if the easing cycle ends, small-cap stocks will significantly outperform utility stocks. However, if it is merely a pause, small-cap stocks are likely to trade within a range compared to utility stocks. Citi concluded that this overall remains favorable for small-cap stocks rather than utility stocks.
Emerging Markets arbitrage performs well.
Citi stated that Emerging Markets arbitrage should perform well, especially if this is just a pause in the cycle.
If the Federal Reserve merely pauses interest rate cuts, Emerging Markets arbitrage will continue to trade very well. If the situation is the end of the easing cycle, Emerging Markets arbitrage will eventually also trade well but will initially experience a sharp decline. Overall, the Federal Reserve's pause or the end of the cycle will not undermine bullish and bearish arbitrage trading.
