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A jumbo US rate cut of 50 points in September is back on the table, and possibly several cuts in a quick succession as the Federal Reserve is forced into a screeching hand-brake turn.
Markets have been caught off guard by a drastic revision of non-farm payrolls, the worst miss since the Lehman crisis. Labour economists can justifiably say “I told you so”. They have been warning all year that instant headline figures do not catch early signs of trouble in the US jobs market when the economic cycle rolls over. You have to look under the bonnet.
“The Fed is late, and is now going to have to scramble, in an undignified manner,” said Paul Donovan, chief economist at UBS wealth management.
One has to sympathise with Fed chairman Jay Powell as he descends on Jackson Hole this Friday for the annual ritual of marshmallow roasting and campfire songs. The institution has been misled once again by unreliable data. The gain in non-farm payrolls in the twelve months to March was 818,000 less than previously stated. The enormous error flattered Bidenomics and overstated the US boom. We should assume that GDP growth will be revised down as well — unless productivity has magically surged, which I doubt.
Citigroup says the economy may already be well into recession. It has pencilled in double-decker cuts in both September and early November.
The start of a US rate-cutting cycle is an intoxicating tonic for global equities, small caps, emerging markets and commodities, provided it comes with a soft landing. It is a different story if a slowdown flips into a hard landing. Portfolios are cut to ribbons once that is allowed to happen.
“We say sell the first cut as hard landing risks are clearly rising,” said Michael Hartnett, investment guru at Bank of America. The S&P 500 fell by an average of 6pc three months after the first cut in the seven hard landing episodes since 1970, and this time stock P/E ratios are stretched to the moon.
It is sobering that combined federal, state, and local deficits running above 8pc of GDP this year are still not enough stimulus to stop US unemployment ratcheting up to 4.3pc and triggering the recessionary Sahm rule. If that level of spending cannot buy you perma-boom, what can?
www.telegraph.co.uk
Markets have been caught off guard by a drastic revision of non-farm payrolls, the worst miss since the Lehman crisis. Labour economists can justifiably say “I told you so”. They have been warning all year that instant headline figures do not catch early signs of trouble in the US jobs market when the economic cycle rolls over. You have to look under the bonnet.
“The Fed is late, and is now going to have to scramble, in an undignified manner,” said Paul Donovan, chief economist at UBS wealth management.
One has to sympathise with Fed chairman Jay Powell as he descends on Jackson Hole this Friday for the annual ritual of marshmallow roasting and campfire songs. The institution has been misled once again by unreliable data. The gain in non-farm payrolls in the twelve months to March was 818,000 less than previously stated. The enormous error flattered Bidenomics and overstated the US boom. We should assume that GDP growth will be revised down as well — unless productivity has magically surged, which I doubt.
Citigroup says the economy may already be well into recession. It has pencilled in double-decker cuts in both September and early November.
The start of a US rate-cutting cycle is an intoxicating tonic for global equities, small caps, emerging markets and commodities, provided it comes with a soft landing. It is a different story if a slowdown flips into a hard landing. Portfolios are cut to ribbons once that is allowed to happen.
“We say sell the first cut as hard landing risks are clearly rising,” said Michael Hartnett, investment guru at Bank of America. The S&P 500 fell by an average of 6pc three months after the first cut in the seven hard landing episodes since 1970, and this time stock P/E ratios are stretched to the moon.
It is sobering that combined federal, state, and local deficits running above 8pc of GDP this year are still not enough stimulus to stop US unemployment ratcheting up to 4.3pc and triggering the recessionary Sahm rule. If that level of spending cannot buy you perma-boom, what can?
The last great engine of the world economy is sputtering out
Both China and the eurozone are in a slump and no one looks ready to take the baton from the stalling US
www.telegraph.co.uk
