Commodities | Economics & Growth | FX | Rates | UK | US
US equities exhibit strong seasonal patterns. Q4 typically sees stocks rally, especially over October and November.
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Summary
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- Seasonal patterns imply a strong Q4 for US equities.
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- Thailand has struggled to recover from the pandemic, lagging its EM peers.
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- We see value trading mispriced BoE rate cuts.
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- Gold has spiked on the Israel-Hamas conflict, but we are not shorting it yet.
A Bullish Factor for US Equities Into Yearend
US equities exhibit strong seasonal patterns. Q4 typically sees stocks rally, especially over October and November (Chart 1). Importantly, this year, stocks have broadly followed seasonals – they rallied in March, April and July when seasonals are bullish, and they weakened in August and September when seasonals are bearish. We therefore see seasonals as a bullish factor for equities into yearend.
Thailand’s Sub-Par Recovery
Thailand’s post-Covid recovery has lagged its EM peers: topline GDP has yet to recover to its pre-Covid peak, and the implied output gap from the pre-Covid trend is the largest among core EM economies (Chart 2). The cliché is to blame disappointing tourism. Hitting 50% recovery was easy. It is the second half that is proving difficult, especially as arrivals from China trail expectations.Position for UK Cuts Before US
The US economy is steaming along. Recent retail sales suggest the consumer is well supported, labour market data shows the labour market remains strong, and the recent CPI beat suggests the path back to target will be volatile.By contrast, UK data suggests the labour market is loosening, retail sales remain significantly suppressed, and core inflation momentum is supported only by idiosyncratic effects (Charts 3-6). Here is how we are positioning in rates and FX.Short Gold? Not Yet…
The price of gold spiked following the Hamas attack on Israel. Option skew has also moved in favour of calls as investors seek gold as a portfolio hedge. However, speculative positioning remains bearish, and geopolitical risks may escalate further. Gold could fall in the short run if geopolitical risk fades, but bearish positioning and our short-term bearish dollar view remain tailwinds.