Lets face the music and dance
So, last week’s volatility is apparently now well and truly in the rearview mirror. The S&P 500 rose over 1.5% yesterday as the love affair with tech was renewed. The catalyst appears to be a smaller rise in US producer prices than expected, further underpinning the hopes the Fed will cut in September. Today will be another big test for markets as we get the US Consumer Prices Index. The question speculators are now asking themselves is not if the Fed cut but by how much. Apparently, according to a Bloomberg report, the market is now pricing in just over a 50% chance of a 50 basis point cut. Goldman has now increased their odds of a US recession to 40%, based largely on the sharp rally in the US bond market. It’s hard to say what reaction to a 50 basis point cut would be. It may not be as favourable as one could imagine, as a move such as that could encourage investors to fear the Fed had decided they are behind the curve and more concerned about the US economy than they let on.
According to the latest Merrill Lynch survey, the vast majority of fund managers still believe in the soft landing scenario, placing little chance of either a hard or no landing scenario. I guess the worry with that is consensus is so often wrong.
Yesterdays. UK employment data underlined that the Labour government has inherited an economy that is not looking so bad. The unemployment rate fell from 4.4% to 4.2%, whilst wage growth remains well above the rate of inflation but is slowing. There was more good news: UK inflation did rise above 2% in the past month. However, this was expected, and the rise was smaller than predicted. Core inflation also came in below expectations. The slight blot on the landscape came as retail prices rose more than expected. Later today, we also get the 2nd estimate for GDP in the euro area.
Quite some time ago, I mused that, in the end, neither Trump nor Biden would fight this upcoming US election. At present, I am half right. Mr Trump’s almost certain triumphant return to the White House now looks less certain, according to the polls at least. All I would say is don’t rule out me being entirely right.
After a decent rally yesterday, followed by a stronger Asia, European markets are expected to start the day on a positive note.