U.S. Fed needs a catalyst before it starts cutting interest rates, says strategist

The markets are actually pricing in 50 to 75 basis points of cuts by year-end and actually our core view is that it's likely to materialise. If we think about what markets have done year-to-day, they've been up, it doesn't feel like they should have been up, but actually equity volatility has been relatively calm. Having said that, we saw a very big disconnect between volatility in equity markets and what we saw in the rates markets and debt spreads, and now we're starting to see contagion. So if we extrapolate the recent trends, these minor or major crises as we would like to describe them, and we extrapolate that trend going forward with the slowing growth and sticky inflation, events like the debt ceiling, I do believe there could be the required catalyst for the Fed to start cutting by year-end. So it's not necessarily a very rosy outlook, but by year-end we do agree that there could be rate cuts. I do think that there needs to be a catalyst for the Fed to shift from this view on being on hold to actually cutting rates, but that catalyst could occur in the next six months with all of the risk events that we have on the horizon. Indeed, and as you say, a lot hinging on the debt ceiling negotiations.

Mevish with another critical barometer of global demand in focus. This is the latest China data coming in hot, obviously missing expectations. How concerning is it for the outlook? Yeah, I think China's bounce back post-COVID has been relatively weak. Again, we're seeing very bifurcated view across manufacturing and services. So a bright spot in services, not as much in manufacturing, but there's no doubt about it. The import data, industrial production and retail sales have really missed the mark there. So I do think from the international investor perspective, until you have some policy support to come in and really protect that 5% growth target, you're unlikely to have a lot of investor flows going into Chinese equity markets.

Capital Connection, CNBC