Hello and welcome to Macro Minutes. During each episode, we'll be joined by RBC Capital Markets experts to provide high conviction insights on the latest developments in financial markets and the global economy. Please listen to the end of this recording for important closures.
Richard: Hello everyone. And thank you for joining us today on this edition of Macro Minutes called Less Support. We're recording at 2:00 PM Eastern Time on November 4th. We're gonna start with the Fed and discuss our views on the signal changes and what that means in US rate markets. From there, we're gonna broaden out the discussion of US equities and global currencies, recapping earnings, the major market trends, and where we see these markets evolving to.
Now the Supreme Court decision year end and recent trade extensions and deals all play a role in this. These are broad topics and have critical implications for investors and their positions and in this spirit to unpack these complex topics, I'm enjoying by Blake Gwinn and Lori Calvasina. So I think my first question should be for you, Blake, 'cause this is the elephant in the room.
Looking at the Fed decision last week, how should we interpret the recent pivot and what are your expectations for short rates over the next six months and how this might differ from, say, forwards or swaps.
Blake: Yeah, sure. I think that's a great place to start. Rich. We, um, you know, we were a little bit surprised.
I think most people, including ourselves, were expecting the FOMC meeting to be pretty uneventful. Uh, just given that we are still in the official sector data blackout because of the shutdown. Uh, and because we have a very tight turnaround between the September and late October meeting. So I think most people were expecting kind of a Control-c-control-V type of meeting where we just took the September statement and, and largely applied it to this latest meeting, but that's not what we got at all. Powell really came out and kind of appeared at, at least in our view, to be trying to inject some optionality back into that December meeting.
You know, you mentioned pricing and, and forwards and swaps. I mean, we were pricing at about a 90% probability of a cut into the meeting that has come down to 60% and even January, uh, where we were implying more than a kind of 50% probability of a cut. Also, that. We saw, um, you know, move down to sub 50%. So we've also seen terminal pricing jump up a little bit that had been trading below 3%.
So that's kind of the lowest rate that the Fed is expected to get to. That was trading sub 3%. That has popped up above 3% again. We've seen that 3% level kind of be a pretty decent peg for market pricing over the last few months. We've generally been trading within a. You know, let's call it 10, 15 basis point band, around that 3% level.
So we've held onto that range, but have popped back above 3% rather than being below it. So what did we actually get from Powell that drove that kind of hawkish interpretation? I think one was really his characterization of the committee. I think a lot of what he was saying in a lot of the messaging may not have even been from Powell himself.
It's not that he necessarily had to change of heart or really is seeing things in a different way. But I think he was probably getting more of a forceful pushback from some of the hawks on the committee. He mentioned multiple times during the press conference, this deep divide on the committee, he was really emphasizing that there was a bit of a split there.
You know, I don't think this is anything problematic. It's probably to be expected when we have data kind of pulling in opposite directions of the dual mandate. Uh, you have people that are more focused on the labor side, people that are more focused on the inflation side. So I don't think that's necessarily a problematic thing, but he just did flag that there is a pretty big split on the committee, and that's something we've been noting as well. The September FED dots, if you look at the scatter there, that's the biggest standard deviation in those dots that we've seen in a September dot plot since the dots have been added to FMC statements, so definitely a bit of a divide there.
So he called that out. I think one of the other things he repeatedly was kind of hammering home this idea that a December cut should not be a foregone conclusion, and that's why I really say that it seemed like he was trying to inject that optionality back into the market. I think when we're pricing in essentially 90 to a 100% probability of an action, I think the Fed wheels very pushed into that action.
They could always move pricing ahead of the meeting. But I think when once you're heading into that meeting with that pricing locked in, I think it becomes very difficult if the Fed just doesn't like to surprise those market expectations. So I think there may have been a desire, you know, maybe he was getting pushed back from the hawks, but maybe he also wanted to make sure that a decision wasn't essentially kind of locked in by markets and really hamstring the discussion around the table in December to really keep things open.
Um, so that they could kind of go in either direction of that, that December meeting. So, really trying to push that market pricing closer to a 50-50 type of level ahead of the meeting. He also, interestingly, kind of mentioned the improvement in growth outlook. This is something we've been flagging. If we remember when Powell turned a bit more dovish to Jackson Hole, it wasn't just the labor market risk that he was citing.
He also had been noting some of the weaker growth, particularly the Q2 GDP numbers for real final domestic demand is something he has been flagging. The revisions that we've gotten since then have almost. Completely taken away that downside risk on the growth outlook. So he did acknowledge that. So one of the two tenets of that dovish churn really have seen a pretty big shift in that narrative, even though we haven't been getting official sector data in the, in the last month or so. But it was something he flagged. One point that we've also been making that he kind of task technically acknowledged is that every 25-basis point cut the bar gets a little bit higher to further action. They don't really know where neutral is. Powell has said that many, many times that you don't know a specific level that represents neutral, but you do know that every time you cut 25 basis points, you're getting closer to it.
And you're getting closer to potentially making a dovish policy error. So I do think the justification for each additional 25 has to get higher and higher, and that's maybe why we saw some people on the committee that were okay with the cut of 25 basis points in September, who are actually now saying, all right, I'm getting less comfortable with each additional 25 basis points.
So again. Coming into December. That's something that could shift things around. And I think the last part to mention before I turn it back to you, rich, is just that it did seem to be that Powell was suggesting the base case for December, if we're still in this data drought due to the government shutdown, if we're still in that, he seemed to be suggesting that this would really be a base case to basically skip a cut at that meeting. I think most people had kind of been thinking of things in the opposite direction that they would continue cutting until they got some kind of new direction or new information from the data, whereas he seemed to be suggesting that would be the base case. He had this analogy about driving in the fog. What do you do when you're driving in the fog? You slow down. So that was another thing I think he said that really kind of shifted those expectations. I think overall, you can sum it up by saying he wanted to inject that optionality, wanted that market, pricing those forwards to be pricing closer to a 50-50 kind of decision, I think, into that December meeting to at least keep the conversation alive and kind of be able to move things in both directions.
Richard: Well, thanks for that, Blake. Walk us through the upcoming balance sheet changes now. What are the implications that you're seeing, and do you think there's gonna be any contagion into other markets outside of short rates?
Blake: Yeah, so Rich, that was the other piece of the fed meeting that I think nobody was expecting anything on.
The rate and the policy side. So all that stuff we were just talking about was really a surprise. Whereas the balance sheet, there was a pretty wide expectation that they were going to take some action at this meeting. We had thought they might wait till December, but in the end it looks like they almost kind of split the difference.
They're gonna end the QT process starting on December 1st. They did pull the trigger on that, but when we really get down to what the implications are, I think people overdo it a little bit. And the reason I say that is because for most people that look closely at these things as we do, and for people that forecast treasury issuance and things like that into the future, an end to the QT process, and kind of the implications for what that means for treasuries, private market financing needs.
Keep in mind, everything that the Fed doesn't buy is supply. They're going to have to push onto the private market. What we've been forecasting these things, everybody's always assumed the QT was going to end. Now, there may be some disagreement about whether it was gonna end given each individual forecast. Some people may have had that incorporated starting in January, ours was closer to May or June of this year. It's not entirely, uh, new information as it were. It's really just kind of a pull forward of an effect that most people were already looking at in their forecasts. These kind of analysis that we do where we can look at the entirety of ending QT and kind of make some estimates about what that means overall for the amount of private market issuance the treasury's gonna have to do over the next two or three years.
Yes, those numbers are very large, but those numbers were already kind of baked in to pretty much everyone's baseline forecast. What has changed is kind of the very near-term trajectory. Those have probably been pulled up by several months, so really over the next few months, perhaps a bit less treasury supply than the markets may have been baking in.
Richard: So we're gonna pivot now, and Lori, I'm looking over at you. Give us a recap on the US earnings roundup so far now, how do these earnings stack up as we head into 2026? And just to piggyback on the points that Blake has brought up in terms of, you know, just less support from the Fed, any risk to stocks from the monetary side that you're attuned to.
Lori: Yeah. Great questions, Richard. So let's start out with earnings and look, I would say, you know, my team and I have been busy these last few weeks just reading through as many transcripts as we can, talking to investors as well.
But really just doing a lot of reading and digging into the details, the overall headline stats are fine. And so, you know, for example, you'll hear 81% of companies are beating consensus earnings within the S&P 500, and that's way up since the last quarter. That's true. But if you look at a stat that I prefer, you know, as sort of a gauge of what's really going on in people's hearts and minds when it comes to earnings, I like to look at earnings sentiment, the rate of upward revision.
Some people call this earnings breadth. But basically what we saw on that stat, it's up a little bit, you know, in our latest update versus the prior week, it's tracking at around 55% upward revisions versus a little under 52% last week. But the real story is that this stat was back at 66% in August, and that's as high as it tends to get if you're moving up.
And you're in a rebound and you're not coming off a low kind of a major recession COVID type situation, 66% is about as good as it tends to get. And if you go all the way back to April, we were down at kind of non-recession lows in late April at around 28%. So we had this big sharp drop, big sharp recovery, and now we're actually starting to settle back down to earth.
And so earning sentiment, whilst technically we're still getting the positive revisions. It's just not nearly as good as it was in the last reporting season. And what's leading that decline? We're actually, you know, we kind of watch this on sectors. We watch this in different cohorts. The top 10 market cap names in the s and p 500, which is, you know, the mag seven plus a few extra that is actually leading the charge down.
And so we have seen that stats still in positive territory, but it had been up at all time highs and now, it's starting to retreat. We've also seen some weakness in the rest of the index, which actually improved a little bit in the latest update, but is also still off its highs. So you're kind of getting it from both ends. But the workhorses of the market, you know, sort of that top 10 cohort, that weakness is what's really, you know, kind of most noticeable to me.
If I put the stats aside and I think about everything I've read the last few weeks, my team and I really. Things are pretty mixed. It's not a reporting season where the narrative lends itself to easy summary. We kind of take it week by week and we think about it in terms of the different sectors, I would say the overall tone is best in tech. Healthcare has been pretty good as well. We had financials much earlier on. That's largely done, and that was a pretty good tone as well. Coincidentally, those are three of the sectors where we're seeing the most resilient earnings revision trends on that metric I mentioned earlier.
I would say the weakest tone by far is coming in the two consumer sectors, uh, staples and discretionary. We just got our first real look at those last week and the lengthy list of things that these companies are highlighting as risk factors and problems is getting quite long. I can't, you know, possibly recap it here, we'll lose half the listeners.
And then I would say the last thing that's sort of interesting to me from reporting season is just the AI commentary. We've been paying really close attention to this and kind of put the companies into kind of two camps. The builders, the tech companies basically, that are building out all the technology that everyone else is using, and then the end users and other sectors. And I would say on the tech side, frankly, things do actually still sound pretty good. We're not getting any indications of slowdown or anything like that. You know, very strong demand, especially around data centers being highlighted. But when we, we sort of think about the companies that are more of the end users and other sector. You know, they're giving all their examples about how they're using the technology in the past.
If I think back to last summer, we would sort of describe what a lot of companies were saying as small potatoes, you know, kind of very, kind of small, tiny examples. And what we said in our weekly this week was the potatoes are getting a little bit bigger and a little bit cleaner, but they are still not huge. And so I think that's one thing that investors on the equity side have been focused on. Just really kind of the return on these investments. And I think the narrative is getting better, but maybe not quite where people have wanted it. If I pivot over to sort of the rate side, you know, this shift on the Fed and the narrative there.
You know, I think from an equity perspective, a couple of different thoughts. Number one, whenever we sort of get news or a shift in narrative, right, that seems not so favorable, you have to look at the broader context and the broader context is whether we're looking at the S&P 500 on a market cap weighted basis, those top 10 market cap names I mentioned earlier.
If we look at, say the NASDAQ-100, you know, kind of these workhorses of the market. Even the S&PX, the top 10, we're basically sitting at levels of valuation that have marked the ceilings, uh, recently, not necessarily at all time highs, you know, our tech bubble highs on that top 10 market cap cohort, but at levels that really for the past decade have marked the ceiling and the market has been trying to punch through these valuation ceilings since August unsuccessfully. We really haven't seen any expansion in the multiple. And so I do think that whenever you see that, you know, kind of the capacity to absorb bad news is low. And so the rates issue is happening in that context.
We've been looking for a pullback in the market. It hasn't happened yet. We'll see if we get it between now and year end. But you know, I do think this has been a market that's been vulnerable to, to correction for a few different reasons. Richard, let's put you in the hot seat for a minute. Talk about whether or not this Fed pivot shifts your view on the dollar and other implications for fx.
Richard: Ah. It is the elephant in the room, isn't it? There's many different ways to measure positioning in currency markets, and they all are gonna kind of move in the same direction. They just don't all give you the same level. Now we don't have the CFTC data with the US government shut down, so we tend to use kind of, banks will use their own. Private data, the proprietary measures, and if we look at the RBC measure of positioning, look, the dollar was a very broad-based consensus, short position, which began in Q1, accelerated in Q2, kind of stabilized in Q2 and began to unwind in Q3.
As we move into Q4 dollar positioning is about neutral. But like I said, it matters on whose data you're actually looking at. Just how close to neutral that is. The way I see it is the market was very convinced of a short dollar position, and when you have a fed, which shifts from kind of dovish cut expectations as you brought up to less cuts, inevitably you're gonna get dollar strength and there's probably additional follow-through coming through in that against the majors and against emerging market currencies. And like I said. A long dollar is not our base case view. We have much more structural arguments as to why we would start to fade it, but this is not a momentum. Investors should start trying to fade at the current point, just barely one week past the fed meeting.
Blake: So Richard, if we could just elaborate a little bit on, you mentioned RBA and a few of the other regions, so can we just talk for a little bit about your outlook on some of the other central banks, ECB, BOJ, BOC, PBOC, etc? You know, how have markets been digesting some of these recent trade deals in Asia as well? I think you can kind of throw that on the pile with CB actions as well.
Richard: Let me start with essential banks and look, ECB has been neutral since September. Now the BOJ met in October. They were less hawkish than anticipated. The first hike for, uh, the BOJ is not expected until Q1 2026. That was a little bit of a disappointment. If we look at the Bank of Canada, when they met in October, they signaled at that cut that that was a one and done. And if we look at the RBA who met earlier this week, they signaled that they are likely done until at least mid 2026.
So if you step back from that and kinda look at it, you know, central banks and aggregate and we include the Fed into it, there is an underlying current of less supportiveness coming from monetary policy, which, you know, I think is one of the major elements weighing on risk assets. And we're seeing this play out across a couple of different asset classes, rates, equities, credit, etc.
That brings up the last point, which is the US shutdown. Should that shutdown reopen? I think that's broadly a positive, not just in the US side, but for global markets overall. And I think one of the main things that I think about outside of the US shutdown really comes back to this idea of tariffs and what is gonna be the cross-asset impact.
So I guess this is gonna be a question to you, Blake, and, and to you, Lori, after that, for the US Supreme Court decision this week on the legality of tariffs. Obviously when we're recording this podcast, we don't know the outcome, but do you see this as meaningful in your markets and, and what do you think some of the impacts could be on these outcomes?
Blake: Yeah, so I think on the treasury side you're obviously gonna have this macro, you know, some kind of a macro view. I'll probably let Lori speak a little bit more to that. You know, I think it is probably a bit more in her world and mine and uh, the way treasuries would trade on that kind of risk on and risk off is probably more a function of what's going on in the equity side of things.
But I will say that one kind of more mechanical aspect that has been getting a lot of play in my corner of the world is the deficit impact. We have collected quite a bit of excess tariffs, if you will, relative to prior years since Liberation Day. There is a view that's, you know, we're gonna throw that around 120 billion, I think, above, uh, prior fiscal years.
If we assume that that kind of trend continues, we're probably talking about. You know, let's call it roughly 250 billion in extra tariff collection for fiscal year 2026. So these are pretty decent numbers in terms of the deficit, if you were to cancel that revenue, you know, obviously that would have some impacts.
There's also this view that maybe if the court overturns this, it would also require the administration to pay back some portion of those tariffs collected to the companies that have paid them. That would also put more of a kind of near term hit in deficits as well. Rather than just kind of a, a forward looking to directory of canceling that revenue in the future.
The pushback I would have on both of those themes, and I think, you know, they're both still relevant, but I just think they're maybe overplayed a bit, is that for one on the payback, I do think the administration would probably make it very painful, very difficult to get that money back. A lot of repayments would be challenging court. Uh, a lot of companies may end up spending lots of money in legal fees to fight lengthy court battles to get that tariff revenue back. I just can't imagine a world where they're gonna make that extremely easy for people to accomplish. So I wouldn't expect that full 120 billion to just be like a one-time hit to the deficits where they're gonna have to really ramp up issuance and kind of fund giving that cash back.
Then on the longer term trajectory, I do think the expectation is that relatively quickly, you know, the administration would try to start layering on tariffs under other authority. So if the IEP ones are deemed unconstitutional, the. Would look to put on sectoral tariffs under other authorities. So there would be some kind of makeup. I don't think it would be dollar for dollar. I don't think they can replace everything they were doing under IEEPA, especially all at once. So I would expect some offset there. So you're not really losing that full 250 billion in tariff collection I mentioned in fiscal or 2026. You're not going to zero, you're not zeroing that out. You're probably just taking it to a lower number. I still think there could be some impact there, but it's definitely gonna be offset. By that new tariff revenue that we would expect to be layered on as soon as these were ruled unconstitutional. The last thing I would just say be on the lookout for is any kind of front running activity like we saw earlier this year where people were trying to build up inventories and you know, there was presumably some kind of gap between when the IEEPA tariffs went out of effect and before new tariffs could be really ramped up in full force. I would assume that would open a window for a similar inventory build. So just something that would impact macro data and could impact the macro story in that interim period.
Lori: Yeah, and I'll just, I'll jump here on the equity side, uh, just you with some tariff thoughts, um, in the court case. I would say just at the macro level, I would very much agree with something that Blake said, which is as we're sort of putting together our thoughts, you know, going forward we assume that tariffs are here to stay for the foreseeable future in some form or another. Um, I think that's been, you know, pretty clear messaging outta the [00:28:00] administration. What we've picked up from talking to trade lawyers and frankly, I think that's where a lot of investors heads are as well when I speak to them in terms of digging down and getting a little bit more micro.
Back in October we did publish our quarterly analyst outlook survey, which is where once a quarter I basically go around all my analysts, ask them a bunch of questions about their views on their industry, and we always throw in some hot topic questions, and this time around, one of the hot topic questions was, how do you view the impacts to your industry if the IEEPA tariffs are struck down?
And we did not make this a required question in the survey. It was a pretty lengthy survey at this point, but we found that we did get, you know, a number of good responses from our analysts, you know, and, and especially some of the more tariff impacted sectors like healthcare, consumer, industrials. What I generally saw was not assertions that this was going to, you know, have a major impact, but that it could help by reducing some tariff related costs. But I, I wouldn't say that people were pounding the table, you know, because again, I think that, that people do assume that tariffs are gonna work their way in one way or another. But I do think there was a positive bias, you know, kind of in the answers to those questions, you know, and if I kind of think about company commentary, I think that companies have really been emphasizing in their earnings calls both this quarter as well as last quarter, their ability to manage through.
So I think that's one thing to keep in mind. I think investors are getting an earful of that. You know, I recall one of the analysts in the survey said, you know, well my companies are doing a very good job of, of mitigating things and presumably, you know, some of those mitigations could come off if needed.
The other thing that sort of jumps to mind when this topic comes up again, is going back to the earnings commentary companies in these tariff affected sectors continue to highlight even as we get, you know, kind of more deals with certain countries and more progress made on other avenues, that there's a lot of uncertainty out there. And I do think this court case represents one of those elements of uncertainty. There was one industrial company that reported recently that kind of. Took investors through a pretty deep, you know, dive into their thought process about how they're handling mitigation. And one of the things they said was that so far they've really just been doing kind of belt tightening type things.
And a previous earnings call they had said they were doing what they called no regrets actions, which were things that could be easily undone if needed. And you know, they sort of delved into the idea of kind of why they had. Been taking more permanent actions and they talked about the need to make investments and the need to have greater certainty of what the landscape was. So, you know, I think about that sort of certainty element quite a bit when these tariff discussions come up.
Richard: Just from the FX side, I'll say this, that the US has taken in roughly 195 billion in tariffs in 2025. If these are struck down, you know, it's very clear there's not an immediate channel to return the capital, but the expectation is that somehow the US is gonna have to return some of it, which would be a dollar negative order flow. The key crux is the US government remains shut down right now. So who are you gonna ask to get your money back? Right. Chances are, I think the way to look at this from a currency side is you're probably gonna have slightly better performance from an ex-US developed market or emerging market equity markets.
So there can be an. Argument for dollar weakness on a short-term basis from a pop in non-US equities. Uh, but like I said, I very much agree with you Blake, and with you Lori, that tariffs are here with us to stay. And so any type of a dollar weaker argument, you know, short-term pop under a risk off environment that we're in's probably to be faded.
We're winding down this podcast and I wanna leave something of a bottom line with investors. And so I wanted to do a round robin in terms of given the environment that we're in. What are your strongest views that you kind of currently have in your asset classes? And if we're gonna leave kind of the listeners here with an idea or a directional bias or a view on performance so far, what were the things you'd like to highlight? Blake, I'll go to you first then Lori, and I'll, I'll finish it up before we close off.
Blake: Yeah. So to be totally honest with you, this is a very difficult time because I think even just looking across markets, conviction levels are very low. Uh, around outright duration, around curve levels, and even, you know, some things that are perhaps a little bit more esoteric, a little bit more plumbing related in terms of spreads, there would probably lean a bit long. But again, um, just given the moves that we've already had over the last two or three weeks, probably a lot less conviction there. I mean, I think what we're looking at is that in the near term, we're probably relatively range bound.
You know, tens are back into that 4% plus range and we've kind of lived there for a while and without new data, I think it's really tough to kind of materially change in a real way that terminal pricing. I was mentioning before that 3%. Kind of peg that we've had in, in, in terminal pricing. I think it's hard for rates across the curve and, and really the shape of the curve to move until we materially challenge that 3% terminal level.
We do think that happens, but it's kind of a longer term idea. So I guess what I would say is very near term, very tactically. You know, maybe you could look at some range plays and things like that, but where I'd probably rather focus is more medium term, that we do think that terminal rate is eventually going to settle higher, but that may just take some time.
The good news is. If you're in curve types of flatters, like twos, tens, fives, tens are, are, are things that we kind of look at. Those are positive carry. So, uh, while you are kind of waiting for those things to come to pass while you're waiting for data to come back online, and we think, you know, that data's going to show that inflation is becoming a bit more problematic than the Fed had been bargaining for, and that the labor market risks are really not deteriorating in the way that perhaps the Fed was most worried about. You know, that's where we think. If those things are really going to shift, but in the meantime, you are earning positive carry to stay in those trades and hopefully give you a little bit more sticking power to be in those kind of curve Flatters.
Lori: I would say on the equity side, you know, if I could just leave everybody with one final thought. We talked about peaking earnings revisions. Um, earlier in the podcast I mentioned peaking valuations. Um, you know, they've sort of hit ceilings and have been able to punch through thinking about sentiment. We're seeing a lot of signs of stress in our work as well. I have been in the camp looking for a pullback, uh, this fall. We haven't really gotten it yet. Have a little bit of red on our screen today as we're recording this podcast. We'll see where we are when it posts, but the reality is that we really haven't seen any repair work done to those valuation problems that we and others have been sounding the alarm about. And, you know, the, the sentiment metrics that we track, we ran through these in our weekly this week, but margin debt has surged on FINRA's stats, AAII net bowls as of last week update. Back to the last couple of highs that we've had, which are not all time highs, but where we've seen sentiment stumble before. And if you look at the recent conference board survey, we've seen optimism on stock prices, specifically not quite at all time highs, but basically in line with levels that typically mark the peak.
So, you know, if there's sort of one thought in my head, in addition to kind of these peaking revisions, peaking valuations, we know sentiment is stretched. It's hard to know exactly when it's gonna make a turn, but we know that eventually it will. If I think about, you know, sort of my longer term view on markets, I'm still constructive on stocks. Next year in September, we introduced a 7,100 preliminary, uh, 2026 target. It's not quite a year-end bogey. We think of it more as a second half, uh, type number. It was really sort of where a lot of our models, what they were signaling at the time on a 12 month forward basis. But we think that we can have a good setup for a stocks next year, but we have some things that we've gotta work through in the short term. There's been no change in that view.
Richard: Thanks, Lori. And just to round it out with fx, thinking about what we've talked through on this podcast so far, which is the Fed pivot, the impact on equities, the impact on sentiments, central banks, broadly outside of the us, kind of, you know, dialing back expectations of stimulus going forward.
You look at, you know, the past one year, if you're running a standard 60 40 portfolio, that's up 15%. You look at developed market stocks so far in the past one year, they're up. 22% emerging market stocks. The past one year they're up 29%. So overall risk has had a very good run and markets have had an excellent run in 2025.
And there's a need to lighten risk from a calendar perspective. Right? So in a risk off environment, Kiwi yen, lower Aussie Yen, lower our typically your highest beta currencies within kind of the G 10 markets or things like cross max with Euro Max. Hire is another one that we like playing. Should you begin to see a continuation of stocks downside looking longer than say a two-week horizon, one of the rotational trades that we brought up is basically looking at downside risk to say, Europe, while looking forward to 2026, would the trade deals a real upside risk to Asia? So a rotational trade for a one month horizon or a little bit longer we like is Sterling Aussie downside. As the UK budget approaches, there's obviously been increasing risks surrounding Sterling.
It's probably one of the most sold currencies across the European spectrum currently right now. And the Australian dollar remains a relatively. Bullish outlook in terms of trade for 2026. And overall this is a carry neutral, but kind of a directional view where you can kind of play the UK risk short term for a longer term rotation into a somewhat more optimistic growth in Asian outlook in 2026.
So I want to thank everyone for listening to this edition of Macro Minutes, and should you have any questions, please feel free to reach out to your RBC salesperson or any of the speakers on this call.
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