Recession risks appear limited, and with inflation approaching target, the Federal Reserve (Fed) is likely to begin cutting rates in September – but the degree of policy easing may depend on the electoral outcome, Lombard Odier says in a report dated Aug 23.
The US presidential election is a key market risk and the result looks too close to call at this stage, despite momentum behind the Harris campaign, the Swiss private bank says. “We would expect a Trump win to result in a united Congress, and a Harris victory to favour a divided one. New Trump tariffs, if fully enacted, would likely push inflation higher and prevent the Fed from cutting rates beyond 4%,” the Lombard Odier report says.
According to Lombard Odier, a Harris presidency would likely see greater policy continuity, with US rates being cut towards 3.5%, and GDP growth for 2025 coming at the 1.9-2.2% range.
In Japan, Lombard Odier thinks any further potential hikes following this month’s surprise tightening will be modest. Absent a major geopolitical shock, and provided central banks continue easing policy, Lombard Odier expects global growth to settle around long-term trend levels in 2025.
The Straits Times Index rose a further 36 points during the week of Aug 19-23 to close at 3,388. In the week ending Aug 12, the STI had already risen 114 points. The rebound of the past two weeks has taken the index above its 50-day moving average at 3,374 and the moving average itself has turned up.
See also: REIT Index set to move progressively higher as Fed cut appears imminent
In the meantime, short term RSI has moved to just above the neutral line. The DIs are neutral and ADX is falling, suggesting insufficient strength to move too much higher. Resistance is likely to appear at the breakdown level of 3,420. Notably, the index has not regained all its losses from its 2024 peak of 3,499 on a closing basis.
The S&P 500 rebounded to an intra-week high of 5,620 on Aug 21, below its all-time high of 5,667 reached on July 16.
The 10-year Treasury yield remains below 4%. During the week of Aug 19-23, it sank to a low of 3.665% before rebounding to 3.854% on Aug 23.
