09/09/2024
Written by: Ian Morley
Summary:
The US dollar weakened, and bond yields fell sharply on Friday after the latest US employment report was released. The report indicated a rise in the unemployment rate and fewer jobs created than anticipated, raising concerns about a potential US recession.
Interest rate markets responded swiftly with significant declines across the curve, leading several major investment banks to predict two consecutive 50bps rate cuts at the upcoming Federal Open Market Committee (FOMC) meetings, with over 1.40% of easing expected by year-end.
The disappointing employment data followed weak PMI figures, intensifying recession fears. This led to significant downturns in global equity markets, with substantial safe-haven flows into JPY, CHF, and EUR. The selling pressure has persisted into this week, with the Japanese stock market closing down by 12% and the US Nasdaq projected to open over 5% lower.
Speeches:
Market Insight:
The combination of weaker macroeconomic data and warnings of a potential Hezbollah/Hamas attack on Israel has unsettled markets. News over the weekend that Warren Buffet’s Berkshire Hathaway has significantly reduced its stock holdings is adding to the bearish sentiment as the new week begins.
Furthermore, the increase in the US unemployment rate has triggered the Sahm Rule, one of the most reliable recession indicators, with a 100% success rate since 1970. This rule states a recession is imminent when the current three-month moving average of the unemployment rate exceeds the lowest three-month moving average over the past year by half a percentage point or more. According to Federal Reserve data, the current Sahm Rule reading is 0.53%, up from 0.43% in June.