Morning Macro 30th October
US Treasury yields still grinding higher this morning while Asian equities extended gains on a burst of trade optimism. The 10-year Treasury yield ticked up to 4.08% (Figure 1, Bloomberg) and the 30-year to 4.63%, as investors digested the Federal Reserve’s muddled message – a 25-basis-point rate cut paired with a hawkish tone that muddied the outlook for December.
Risk appetite faded as Powell’s “no preset path” comment unnerved traders. Stocks erased early gains despite Nvidia’s historic $5 trillion valuation, while the dollar strengthened. The Fed’s divided stance (with Miran calling for 50 bps and Schmid calling for no cut) has added another layer of uncertainty for investors already juggling diverging central bank paths. OIS pricing implies the lower bound of the fed funds rate at 3.706% after the December meeting up from 3.64% pre FOMC, with only 17.5 bps of cuts priced for December.
The Fed’s quarter point cut comes at a time when the SP500 is at all-time highs, the 5th time this has happened (figure 2, JP Morgan). In all prior instances the index was up a year on, with the worst one year return 15% and the average return 20%. To add fuel to the fire, the Fed will also be halting QT in December. In fact, they will reinvest all mortgage backed securities principals into treasury bills. If in doubt, print your way out.
Over in Asia, Beijing will pause countermeasures and export controls for one year, while Washington removes the 10% “fentanyl tariff.” Both sides pledged cooperation on fentanyl and agriculture, extended tariff exemptions, and committed to properly address TikTok-related issues.
Also the KOSPI rose another 0.23%, setting a new all-time high and extending a 19% rally this month, as South Korea announced a blockbuster $350 billion trade package with the US (Figure 3, Bloomberg). The deal includes major Korean investment in U.S. shipbuilding and energy purchases, aimed at deepening industrial ties and securing long-term supply chains. The agreement follows an upbeat meeting between Presidents Trump and Xi in Korea, where the two leaders pledged to ease trade tensions and halve certain tariffs on Chinese goods – a move investors saw as supportive for global growth.
The renewed optimism across Asia came as Japan’s bond markets stayed subdued after the Bank of Japan held policy steady. The board voted 7–2 to keep rates unchanged, with limited changes to inflation forecasts – a clear sign that a December hike remains unlikely. JGB yields drifted slightly lower post-meeting, underperforming recent U.S. moves. The US–Japan 10-year yield spread widened to about +242 basis points, up from recent lows around 230, reinforcing yen weakness and boosting export-heavy Japanese equities (Figure 4, Bloomberg).
Data today: Euro Area GDP, Italy unemployment, ECB decision, initial jobless claims
