A cold spell hits US employment.
Similar to August, September begins with cyclical concerns emerging from the US PMI reveal little improvement. The manufacturing sector remains weak, struggling to recover, while the services sector continues to sustain the US economy. However, this resilience in services, heavily reliant on consumer confidence, is now under threat. Once again, the labor market is a key point of concern, as it was a month ago. The loss of momentum is evident. In August, job creation fell short of economists' expectations. Most notably, the July figures were revised down to just 89’000 new jobs, the lowest monthly total since the COVID crisis. This has rekindled fears among investors that monetary policy may be lagging behind economic developments. Has the Fed fought inflation for too long, risking a more difficult economic landing?
A rate cut at the beginning of the summer, following the lead of the European Central Bank, would have been justified in our view. However, it is hard to blame Fed officials when we consider that US growth still reached an annualized 2.8% in the second quarter. That said, what truly matters now is that Jerome Powell and his colleagues at the Fed have considerable room to act in response to the recent slowdown in activity. With the Fed’s key rate at 5.5%, they have ample space to ease monetary policy, especially as their primary inflation measure now stands at 2.5%. A first rate cut is expected to be announced at next week’s meeting, likely a 0.25% reduction, though a more aggressive 0.5% cut cannot be ruled out. Additional rate cuts are anticipated before the year’s end and into early 2025, with the Fed able to calibrate the pace and depth of these cuts based on forthcoming economic data. The US bond market is already pricing in the upcoming shift in monetary policy. Last week, 10-year Treasury yields fell to their lowest level since the summer of 2023, at 3.7%.
September, a challenging month for US equities…
The first week of the month has certainly lived up to expectations. September is traditionally the worst month of the year for US equities. Over the past five years, the S&P 500 index has, on average, corrected by 4.2% during this period, which is precisely the decline observed last week. This year, volatility could be further exacerbated by a particularly busy economic and political agenda. Additionally, from a technical standpoint, indices hit a significant resistance at the start of the month, namely the all-time highs for the main US stock index. As a result, the coming weeks may remain turbulent, but seasonality is expected to turn favourable again in October, as the fourth quarter has historically been the strongest for risk assets.
This week's figure : -10%
The price of oil has experienced a sharp weekly decline amidst fears of an economic slowdown. This shift in prices has also prompted OPEC to postpone a planned increase in crude oil production.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
