All Eyes on Rate Cuts? | Macro Mondays: December 8, 2025

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2:14Hello out there. Welcome to another edition of Macro Mondays here at Real Vision. My name is Mikl Rosenwald. I'm your usual host each Monday. and this week, as usual, we're sending to you live from the much debated European Union. And as usual, I have you with me, Andreas. It's been a hectic weekend for the transatlantic relations after that X fine we heard about on Friday. I don't think we're going to delve too much into that, Andreas. What do you think? Well, I think we should enjoy it while it lasts, at least our presence on X. Maybe we will no longer be able to use X without a VPN. I don't know.

2:52So it could be that the EU shuts us out entirely. We'll have to see it, Andreas. We have a great show for you today. We're going to cover, talk about the American job market. We had some numbers last week pointing in various directions. Obviously, we're going to cover the upcoming Fed meeting and the outlook for 2026 there. And a bunch of other stuff. We've got room for your questions out there, listeners. So please chip in if you have questions, whether you're watching on X, YouTube, or on Real Vision. We've had some great weeks in Real Vision. We had a really good Black Friday, lots of great content.

3:26We have loads of more coming up. Andreas, you and I are preparing end of the year, or should we say start of the year, report and show, essentially laying out the thematics for next year. Could you just put a few words to what people can expect from that? You know, I think the base case is that we'll see a very, very soft Federal Reserve next year. We'll obviously discuss the upcoming meeting this month. in a second. But given that backdrop, if we see rate cuts during 2026 into an economy that is doing okay, we'll debate the labor market in a second as well, you have plenty of opportunities across risk assets still.

4:08I think the key question for 2026 is whether this alteration of the liquidity creation from the central bank to more private channels, let me put it like that, banks and the U.S. Treasury. Is that something that will alter the broader asset allocation? Maybe the jury is still out on that. I'll release my primer on liquidity for 2026 as the backdrop for this discussion on the 2026 themes that we'll release in a couple of weeks. So read the primer today if you're a pro member of Real Vision or else go watch the show that we'll release during the holiday season. Absolutely. If there's only all that or if you're more into crypto anyway, remember to book your tickets for the crypto gathering.

4:54I've been forgetting to mention that, Andres. We're both going to Miami Beach, January 22nd to 25th. It's going to be great, the Real Vision crypto gathering. We're going to have Raul, Julian, Jamie, all the good guys there. So be sure to check into realvision.com slash crypto gathering to get your ticket right now. That's going to be a blast, I'm sure. Anyway, Andres, let's, or perhaps before we get started, we should take our usual little disclaimer here. I think Italy got a decent group with the World Cups, if they do qualify. But nonetheless, it's time to remind everyone that our trade ideas might be...

5:29Sometimes it may be good, sometimes it may be shit. Absolutely. Giannana Cartuso there. Okay, Andreas, let's jump straight into it. As usual, we had a lot of Trump action over the weekend. And I just wanted, perhaps the laugh of the week, to show you this picture. they're laughing anyway how did you find this whole World Cup you're a big football soccer fan just as I am Andreas did you watch the draw or what did you make of it well he got the inaugural FIFA Peace Prize wasn't it I have to say that the bald guy on the picture Gianni Infantino he's a really really good marketing guy first of all and he's really really good at public relations especially with dictatorships and And, you know, sorry that I'm laughing at it, but he's also good at managing his relationship to Donald Trump.

6:21And I think this picture is very, very telling in that regards. Obviously, he needs to be able to manage that relationship, given that Trump is the host among a couple of hosts next summer, right? In any case, really much look forward to it. And he even got Donald Trump to say that there is only one type of football. So they need to find a new word for the NFL. So that was a big, big, big sentence to me. Absolutely. Okay, Andreas, I just, enough about football for now. It's going to be a great show, I'm sure. And I think you're absolutely right. Infantino has managed this perfectly to remove some of the risk for that tournament at all.

7:02Something else that came out of the Trump administration seemed like over the weekend, they agreed that what they should be marketing now is that perhaps equity returns haven't been too great. in the second Trump period. But look at the bond returns. I've just posted a picture here. And I mean, this is true, but is this the goalpost now? What does this even say, Andreas? You know, the timing of this chart is a little bit interesting, given that we've actually seen rising bond yields the past week here, also today in the early trading. But I think there is some merit to this, to be honest, because, you know, I think a lot of people expected the bond market to riot against this Trump administration this year.

7:46It initially showed signs of turbulence back in March, April around the Liberation Day, etc. But, you know, ultimately, we've actually seen much better performance in the U.S. than elsewhere in bond space. While that hasn't been the case in risk assets, it has truly been the case in bond markets. And I think the reason why they're trying to tour with this message is obviously that they've had a focus on, if not balancing the budget, then at least trying to contain the damage in a sense from the growing deficit, from the lack of momentum in terms of balancing things. And they've had some luck with that, in part due to tariffs, but also to some extent due to other sources of revenue.

8:37So I think on a rate of change basis, they've actually done well. It's a big ask to fill the void on this budget. But on a rate of change basis, they've done okay. And I think I expect them to do okay next year as well. That's a fair analysis, Andres. I was beginning to wonder if the Trump family had made the full pivot from meme coins to bonds. So this is a great season for that, but we're not quite there yet, Andres. Okay, let's stick with the U.S. economy, Andres, and take a bit of a deep dive into the U.S. job market. Because obviously we had numbers, the ADP employment numbers last year. We have the breakdown here by industry.

9:18So was this as bad as it looks, or what do you think is going on here? Sure. So, you know, if you look at the overall job creation, it was slightly negative on the month. And, you know, at least if we had received such a drop report, say, a year or two ago during the Biden era, everyone would have panicked because, you know, the U.S. economy probably needed to create a couple of hundred jobs a month to sort of stay in balance back then. now, I think this is, you know.

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11:03Now that the labor force shrinks, that they've turned the tide on migration, etc. etc so if the average breakeven rate is 30k you should expect some prints below zero now and then without panicking and the market really didn't panic too too much either the interesting thing here is that this could be used as an excuse to cut interest rates and and given that inflation is still printing substantially above target they did they probably need some excuses into next year if they want to cut interest rates all the way to the midterms, right? So I think this is actually in turn bad news that will prove to be good news because it will allow the Federal Reserve to continue cutting.

11:49If you look at the details of this ADP report, I'd actually argue that it's slightly worse than what was reported because look at education and health services. It's essentially the only sector that holds up job creation. and it is a sector that is not a true depiction of what's going on in the economy. Cyclican. Yeah, construction, manufacturing, et cetera, printed negative on the month. And then we had quite substantial net negative job creation in information services and professional business services, in my opinion, very related to AI. Yeah. That was what I was going to ask you. How much does AI influence this?

12:30because it seems to me that the job market is changing. We're perhaps not there yet. I know we're not there in manufacturing or construction necessarily, but how much of an effect is AI making on this? And when do we come to the point where this is not necessarily relevant for the economy because it's simply a matter of AI taking over these jobs? We've heard this doomsday story about robots taking over the labor market for decades. But for once, I actually think there is some, and let me underscore some merit to it this time around, as AI is able to replace a lot of manual jobs in services, very much related to consulting tech and stuff like that.

13:13And we actually see the impact on hiring in the exact sectors that we should expect to see the impact in, which makes this an even more feasible thesis. So I think slowly but surely, we're starting to see some evidence that AI is impacting the job creation. And it should. It has impacted the job creation in our little shop, Michael. It has impacted the job creation in many similar shops around the globe. So, you know, when you aggregate all of that, there is obviously a macro impact here. Kevin Hassett, we will need to discuss that guy in a second from the next Fed chair. He said that he expects a 4 % productivity print next year.

13:57I wouldn't rule that out, but it would take AI productivity gains to get there. Also bigger gains than we've seen this year. And the Fed and, I mean, the entire cadre of economists might need to recalibrate the reading of these job reports. because on one hand, it's not as much of a macro indicator whether jobs are being created because they've been replaced by AI. On the other hand, if jobs are disappearing, you have people without jobs. So it's still a policy issue. Before we get to Kevin Hassett and the Fed address, I'm still sometimes trying to wrap my hip around this, that while we see these weaker job reports, we have this, the temporary hiring, re-accelerating.

14:39and is this a matter of people getting laid off and then hired back or hired temporarily into other services or how do you read this? So this staffing index is, you know, it covers temporary hiring in the economy. So what I'm still not 100 % certain about is whether this is a side effect of the ICE efforts to deport illegal migrants or not. But a simple question here, Miguel, if you're an employer and suddenly you're faced with an ice rate and some of your employees are getting deported, you'd probably call a company able to help you with some temporary solutions to that problem, right? So that could be one way of explaining why this staffing index for temporary hiring is more or less through the roof while the business cycle is not really moving, because usually they move in tandem.

15:38The other way of explaining this is, you know, I think it's related to the uncertainty around tariffs. We still don't know whether tariffs are on or off. We still have that ruling ahead of us from the Supreme Court. So if you're a company with an improving orders book right now, would you hire permanently or temporarily to match that orders intake? I would probably, as an executive, decide to hire temporarily right now. And that is typically why we see temporary hiring early in a re-acceleration phase, because if you're an executive and you have a mighty outlook, but you start to see improvements, you typically decide to temporarily fill that gap before permanently deciding to do so once the order book is a little bit more permanent.

16:30We'll have to see. In any case, Andreas, these reports, especially the ADP report, will be a huge indicator for the upcoming Fed meeting. Let's just stay with what happens on Wednesday, and we'll get to 2026, Andreas. Do you see any risk of a surprise, of an upset here, or are we going to get the cut that most people are expecting here? Yeah, we'll get the cut. but you know it's incredibly rare that a central bank decides to you know rule against the bond market and that would be the case in case they decided to to leave rates unchanged the big question to me is the liquidity question and of course also the guidance for next year i suspect that we will get fairly limited guidance since you know paul is running towards the end of his reign right so so he'll probably as i've said many many times now try to get to the finish line in one piece deliver a few rate cuts stay in the middle of the road try not to upset anyone until april next year and then we'll see with the next year kevin has it but on the liquidity question maybe we can bring up the chart on the funding gap that we have between now and new years And the top panel here is a measure of bank reserves available to the financial system.

17:55Bank reserves are used to settle interbank trades based on FedFund, so forth, etc. And we've seen hiccups in these repo rates, especially since the government shut down and the buildup of the Treasury General account. So we simply have a lack of bank reserves or a scarcity of bank reserves available to settle these transactions. On my best estimates, we're talking about a gap of 250 billion. The Federal Reserve is aware of this. They've hosted a couple of emergency meetings with the depositor institutions on the receiving end of these bank reserves. And I guess that will get a conclusion one way or the other from Jay Powell on this.

18:42This is a slightly technical matter, so it is not necessarily something that they will have to address exactly during this meeting. They could also take a technical decision on this topic outside of the regular schedule. But if they take a more formal decision on this, it will probably be to launch some sort of light QE program, maybe buying, say, 40, 50 billion worth of T-bills every month. But to me, that is a suboptimal solution to this because it will take five, six, seven months to get us back above pain levels in the funding market if they only buy$50 billion a month. And we have a gap of$250, right?

19:25That's at least five months of buying before we're back where we need to be. And we have this change of the legislation around supplementary leverage ratios upcoming in the first quarter of next year, which will likely help alleviate a lot of these issues since it will reduce the need to hold bank reserves from a legislative perspective for banks. So what I'm trying to say here is that I think the smartest solution to this is to announce some kind of a term repo at this meeting, saying, okay, from now on until mid-Q1, we'll provide endless liquidity at this level.

20:10and fill the gap, the funding gap with a temporary solution instead of a more permanent one until we have the full picture of how these legislative changes to the supplementary leverage ratio will impact repo markets next year. Let's see what we get. We'll get one conclusion or the other on this and I think they'll address it. Let me put it like that. And ultimately, we should salute that. markets will probably also cheer. So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible.

20:49And this guide will help you navigate what's coming. The link is in the description. Download it now. Yeah, sounds like just what we need, Andres. Let's talk a little bit about this guy, Kevin Hassett, Andres. I had a question, I just need to get it here, from an ex-user called Walshy. If we get a hawkish cut from Powell on Wednesday, will markets look through it with the likelihood of Kevin Hassett as Fed chair and plenty of rate cuts in 2026? Or how do you think the outlook is going to be?

21:20Very good question, because one thing is the Fed chair, the other thing is the committee overall. And I think I need to remind people of this on a running basis when I talk about the next Fed chair. No matter the next Fed chair, they're still going to vote. The committee is still going to vote on these decisions, right? So even if Kevin Hassett is a loyalist and he's trying to get Trump's way, so to speak, in the committee, it's still a democracy, that committee. And he's only got one vote, right?

22:00So the optics matter a little bit more – sorry, a little bit less in practice. So I think from a market perspective, the point of view I'm trying to make here is that Powell is just one voice, has a student just one voice. You'll need to have a look at the composition of the votes on Wednesday. And if it's a very, very tight call, whether we get a cut or not, which may be the case. It depends on whether Paul is able to convince some of these members currently against cutting of voting with him, because I think he'll vote for a cut. Then we should have smooth sailing. But if we have like maybe four, five voting against, then it's probably the first glimpse of what we'll see all next year.

22:51Like a very, very divided committee where Kevin Hassett will have a tough time trying to form any consensus around anything. and then all of these small tricks they have up their sleeves in terms of trying to orchestrate a supermajority in this committee Besant and Trump have talked a lot about that trying to form a majority in favor of their policy stance in the committee then that will certainly become the next major question but the majority is there for the right cuts still but it may be a tiny one so I think the composition matters more than what Powell says So there's going to be a lot of reading between the lines here, Andres, and reading the vote count, essentially, perhaps.

23:32I just wanted to throw in here, Andres, before we move to some further listener questions here, a couple of charts on the expectations for next year. Markets seem to be completely confused about how many cuts we're going to get next year. I know there's a lack of guidance. It's very, very hard to say. Perhaps we can focus in on the January meeting with the consensus being no cut. Do you have any idea of this or do we simply need the guidance from the board? So, you know, I'm currently staring at the forward pricing of interest rates also in Bloomberg while we bring up this chart as well, Miguel.

24:12And we have, I think, 43 basis points priced in between the meeting this Wednesday and the meeting in April. So that's four consecutive meetings and 43 basis points priced in total. That's one cut this week and less than one cut at the three subsequent meetings. That is almost puzzling to me, given that we will receive the third right cut in a row this week. And even though there has been some internal discussions on whether to continue or not, my best guess is that Powell wants to get to 1st of May. I think that's where his terms end. in one piece. He'll try to, you know, form a majority around at least another rate cut, maybe even two during the first quarter of next year to get there without too much noise.

25:03And that's all that counts for Powell now. Given the now cast and the Fed Reserve also do now casting on inflation, we do not see inflation accelerating at the moment. So his legacy will not be one of runaway inflation even if he cuts a few times next quarter. I mean, we will not see the impact on inflation between now and then. So I think it's very likely that, you know, I'm talking about Powell's personal incentive structure here is that he tries to, at least to some extent, massage a few rate cuts in there to avoid too much turbulence and too much noise. Because there is a majority in favor of doing that.

25:45And as long as that's the case, it's what power will pursue. So we don't have enough cuts priced in. If you look at the entirety of the year next year, we probably have a bit more than three cuts between now and then. It's not enough. It's not enough. And I'll stress that again here. Way too few cuts priced in. South Graven Reyes. Okay, we have time for a few questions, Adria, so we're going to be diverting ourselves a little bit into some other topics here, but that's always fun. Eli Monchur from X is asking, are industrial commodities and mining companies the place to be in the next six months?

26:31He's talking about fertilizers, copper, etc. It's a very good place to be, at least. And one of the things that, you know, one of the assets or asset classes I like the most for 2026 is commodities, broadly speaking, as a consequence of the impact that we'll likely see from the Fed conning cycle on the dollar, first and foremost, but also as a consequence of some of the supply scatities that we're seeing, namely in copper, but also in other industrial metals, as a consequence of the terrorist policy. um i've written a lot about that you have a huge idle inventory of copper in the u.s now because every executive needing copper in the supply chain basically told everyone to get copper into the u.s before those fucking tariffs arrived right um as simple as that so you know the u.s sucked in a lot of material uh and given that you have import tariffs now uh it's not going to be a feasible case to re-export those to fill the void outside of the U.S.

27:36So we have this odd scarcity of copper outside of the U.S. with no economic incentives to re-export the copper from the U.S. to the rest of the world. So I think that is a story that holds true for several of the industrial commodities. And when you have the dollar cycle in mind as well, paired with what is hopefully a business cycle take up next year into the midterms. I think it looks very good for commodities. We've also seen a very clear technical breakout. And yes, we have copper miners in our portfolio. We also have a few single names that you can find. And if anything, we have too little exposure to it.

28:18Okay, let's do a question from Steven here. How are you liking IREN still after their dilution last week? Do you still see it as a long-term hold? long-term hold is a really good question in the air in an air cycle that is uh as outrageous as this one uh i think iron is an asset heavy company um and an asset heavy company is very much dependent on an accelerating apex cycle so i think the capex cycle will accelerate even more in 2026 That's good news for an asset-heavy company like Iron. And therefore, on a cyclical basis, I still like the stock a lot next year, as with other infrastructure plays in the AI space.

29:06I'm not sure that this is a place to hide in a rate of change downturn from a CapEx perspective, because you're essentially the backholder as the infrastructure play when the rate of change in terms of the investment pace slows. So from that perspective, Iron will prove to be one of the most cyclical plays on AI, also going forward, up and down with the cycle, but the cycle is still pointing up. Okay, we have a fresh question here that came in live on X. I'm not sure we're going to get it on the screen, but it's from a guy called Myers on X. I think it's really interesting. What are the arguments for and against the Fed buying$45 billion in T-bills starting January 1st versus them waiting?