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JPMorgan: Powell Reappointment Reduces Uncertainty

CROSS ASSET
  • Chair Powell's reappointment reduces uncertainty, and hence should be a positive for risk assets. Historically, markets try to test new Fed Chairs, so JPM believe this outcome will be avoided.
  • Additionally, Powell's experience from 2H18, where policy tightening contributed to the strong market selloff into year-end, will likely result in a cautious approach to the Fed's liftoff next year.
  • Easing US-China tariffs are a potential non-consensus equity tailwind, particularly for Cyclicals and Small Caps, boosting growth on both sides and helping moderate inflation.
  • JPM see global yield curves re-steepening as the growth outlook improves, which supports their thesis of internal rotation toward Cyclicals and Value. They stay short UST duration given rich valuations, along with scope for rising term premia to boost interest rates at the long end.
  • In FX, JPM see scope for differentiation in EM, where they UW ZAR and TRY that appear vulnerable to rising core yields, but stay OW RUB given strong terms of trade and OW CZK.
  • They also buy CAD vs EUR, based on the relative normalization path and commodities exposure in CAD.
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