Bassanese Bites: A jump to the left – July 08 2024
Global markets – week in review
US stocks bounced back last week and bond yields eased as soft economic data supported the idea of rate cuts this year. With regard to US economic activity, markets are still in a “bad news is good news” mode.
The early part of last week was dominated by US service and manufacturing surveys – both of which were softer-than-expected. Although manufacturing has been subdued for some time, the real surprise was the slump in the services index to 48.8, compared to market expectations of an easing to 52.7 from 53.8. The survey has been choppy in recent months so at this stage we could just attribute the rogue result to volatility. Markets, at least, remained more focused on the good news with regards to possible rate cuts.
Then came Friday’s US payrolls report, with a modestly stronger headline result (+209k vs. market 190k), offset by a large 111k downward revision to employment in the previous two months and a further lift in the unemployment rate to 4.1% (market 4.0%). Annual growth in average hourly earnings eased to 3.9% from 4.1% – in line with market expectations.
As in Australia, all this is consistent with a gradual cooling in the US labour market. Indeed, one indicator of US recession is now flashing amber, with the three-month moving average unemployment rate 0.4% above its rolling 12-month low (according to the ‘Sahm rule’, recessions have usually been triggered when this measure moves 0.5% above its 12-month low).
It will be fascinating to track if this becomes yet another recession indicator (a bit like the yield curve so far) which will be thrown into the dustbin of history in the wake of this unusual COVID-driven US economic cycle.
In other news over the weekend, France has avoided outright victory by the Far Right National Rally party – though the likely fragile centrist/left governing coalition that emerges will hardly be much more conducive to much-needed economic and fiscal reforms. After a step to the right in the first round of elections, voters jumped back to the left on the weekend – helped by centre and left wing candidates avoiding running against each other so as not to split the anti-right vote.
All this will still allow the French Far Right to keep throwing stones from the sidelines – leaving them still a threat at the French Presidential election in three years’ time.
