Global Rate-Cut Cycle Begins

Following a broad disinflation trend and slower credit growth, several central banks moved from holding to easing. Earlier cuts from Canada and Europe were joined by the Fed trimming rates, signaling confidence that inflation was returning toward targets. Curves steepened modestly as front ends fell. Credit spreads stayed contained, with issuance healthy. Equities welcomed lower discount rates but priced uneven growth and margin normalization.

We expected the easing path to be gradual. Services inflation remained sticky in places, and labor markets cooled without collapsing. Policy had to balance avoiding a resurgence of inflation with repairing interest-sensitive sectors. We viewed this phase as supportive for duration and quality credit, with scope for selective cyclicals tied to improving real incomes. FX adjusted to relative paths, with the dollar responsive to growth differentials and Fed cadence.

In client portfolios we extended duration in core fixed income and added high-grade credit with attractive spreads-to-history. We rotated modestly toward quality cyclicals—industrials and travel services with visibility—and kept defensives at strategic weights. We trimmed some inflation hedges where breakevens had fallen, maintaining a core allocation as insurance. We preserved liquidity to respond to surprises in growth or policy communication.

We tracked wage growth, services prices, and bank lending surveys as guideposts. We expected bouts of volatility around data and geopolitical events. Our stance aimed to harvest carry and potential multiple expansion without leaning on aggressive growth assumptions. The cut cycle begins; execution and patience matter from here.