Jean Boivin – Head of BlackRock Investment Institute together with Wei Li – Global Chief Investment strategist, Glenn Purves – Global Head of Macro and Michel Dilmanian – Portfolio Strategist all forming part of the BlackRock Investment Institute share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.
Key Points
Mapping multiple scenarios : We refresh our macro scenarios over a tactical horizon while still seeing a softer labor market and Fed rate cuts supporting risk assets and broader risk appetite.
Market backdrop : U.S. stocks rose to fresh highs. We look for updates on AI capital spending plans in a busy week of megacap tech earnings results.
Week ahead : We eye global central bank meetings and expect the Fed to again cut rates. The U.S. government shutdown means markets will likely lack GDP and PCE data.
A cooling labor market should allow the Federal Reserve to trim interest rates again this week, supporting risk assets. We refresh our macro scenarios used to inform our risk stance – including potential downside scenarios if inflation proves sticky. We think gold’s surge this year – and brief selloff – is tied to worries about debt in major economies but also partly due to bullish risk appetite and potential speculative froth. We see gold as a tactical exposure within portfolios.
Fed rate cuts have boosted risk appetite – and gold has had an unusual surge this year after decades of being relatively dormant. Gold is on track for its biggest annual surge since 1979 – when inflation was rampant – and is still up more than 50% this year. See the chart. What’s driving it? Worries about the fiscal outlooks in major economies are one factor as investors seek portfolio diversifiers away from long-term bonds. Central bank buying is still a persistent factor boosting gold. Yet bullish risk appetite is also playing a role, especially with the retail buying binge that took it to new all-time peaks near $4,400 this month. Such a speculative surge means a sudden pullback isn’t surprising, in our view. These moves reflect how Fed rate cuts can support risk appetite – and yet we refresh our macro scenarios that could spur a less pro-risk stance. We see gold as a tactical exposure in portfolios.
Our base case macro scenario assumes that the cooling labor market and current “no-hiring, no-firing” status quo persist for the near future. The September CPI – along with signs of rising jobless claims – reinforces this view and gives the Fed a data-backed path to keep cutting and avoid renewed political tensions from inflation and debt servicing costs, putting questions about its independence and fiscal dominance – when debt sustainability considerations take precedence over managing inflation – on the backburner for now.
Reassessing macro scenarios to inform our risk stance
Yet we see risks to this view. We refresh our macro scenarios to account for different labor market outcomes – and what that would mean for our risk stance on a tactical horizon over the next six to 12 months. In one scenario, hiring rebounds amid ongoing labor supply constraints – creating a mix of higher inflation and slow growth while reviving questions about the Fed’s independence. Stocks would fall while long-term bond yields rise, steepening the yield curve. In another, the AI buildout and the resulting productivity gains lead to a better mix of stronger growth and lower inflation. We could see big stock gains with a limited bond yield rise. And we also consider a recession scenario driving stocks and yields lower.
Beyond the Fed and U.S. labor market, we’re watching U.S.-China trade negotiations. U.S. President Donald Trump heads to the region for a summit around which he says he is hoping to strike a series of trade deals – and to potentially do so with Chinese President Xi Jinping. That could drive a potential short-term market reaction, but we don’t see trade uncertainty as a sustained market driver now compared with earlier in the year and the volatility sparked after the April 2 tariff announcement. Heading into this U.S.-China meeting, we’ve seen immutable economic laws – chief among them that supply chains can’t be rewired overnight – come back to the fore in limiting how far the U.S. will go on trade policy. That helped stocks bounce back quickly from renewed trade concerns earlier this month.
Our bottom line
Our base case – a softer labor market allowing Fed rate cuts and supporting risk assets – is playing out. Yet we have refreshed our macro scenarios for assessing our risk stance. Gold’s recent surge reflects strong risk appetite, in our view.
Market backdrop
U.S. equities pushed to fresh record highs after the U.S. CPI data helped reinforce expectations that the Fed will cut interest rates at its last two policy meetings this year. Solid earnings have also helped stocks recover from recent wobbles. Next week sees mega cap tech companies reporting, with a focus on AI capital spending plans. U.S. 10-year Treasury yields hovered near six-month lows around 4.00%. Gold hit all-time peaks near $4,400 before sliding, snapping a nine-week winning streak.
It’s a busy week of global central bank meetings. The Federal Reserve is widely expected to again cut rates, with a focus on how the Fed is viewing the labor market. The European Central Bank may confirm an end to its easing cycle as inflation hovers slightly above target. The Bank of Japan is expected to hold rates steady, but we watch for hints of the timing of a next hike. The U.S. government shutdown likely means more delayed data, including the first reading of Q3 GDP data.
We are eying the delayed U.S. CPI for September, the first major economic indicator to be released during the government shutdown now heading into its third week. We’re watching for any sign of tariffs passing through to core goods prices and evidence of core services excluding shelter costs staying stubbornly high. Otherwise, private surveys such as global flash PMIs are key for understanding activity trends until the U.S. data resumes.
Week Ahead
Oct. 29 : Fed policy decision
Oct. 30 : BOJ and ECB policy decisions; Euro area GDP; U.S. Q3 GDP (scheduled)
Oct. 31 : U.S. PCE (scheduled)
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