Nick Timiraos’s WSJ article and one from his peer at the FT have helped fuel a frenzy of expectations that Powell is pushing for a 50bps cut at next week’s meeting. For the record, this would be highly divisive within the FOMC.
Earlier in the week, we sent you a piece entitled “The Fed and Employment”, highlighting the various employment metrics we had on our radar, and at face value, the data was commensurate with the market’s soft-landing assumptions. Unfortunately, when we dig below the surface, we believe the numbers actually raise the risks of a recession.
Since the spring, we have sent you periodic updates of Nvidia’s chart because, while we aren’t equity analysts, the company is the lynchpin of the AI story and, therefore, has macro relevancy. What’s more, as we head into its earnings on Wednesday, we are sitting at a level that could decide the fate of the whole US equity market.
In this latest Ask Me Anything session, Julian Brigden and Harry Melandri went live to discuss the fragility of the current financial market cycle, emphasizing overvalued U.S. equities, potential risks from a weakening dollar, and the challenges central banks face in maintaining economic stability. The session concluded with a Q&A from the audience.
A month ago, we sent you a piece called “US Assets: The Unwind”, which we followed up with a short video entitled “Reflexivity Strikes”. In them, we discussed the possibility that far from “exceptional”, the last decade of US outperformance was simply a reflexive bubble, one dependent on the self-reinforcing action of ongoing economic strength with the associated current account deficit, a strong dollar and rising asset prices. Whereby, if any of those three variables deteriorate sufficiently, the whole virtuous cycle could start to unravel.
As we head into the weekend, we just thought we’d share a few quick thoughts regarding the recent data. Firstly, while the market got all excited by retail sales, we believe the outsized jump in the MoM is primarily a function of analysts underestimating last month’s Amazon Prime Day.
After the recent data, there’s no doubt Goldilocks’s porridge is beginning to look a little “too cold”, and the risks of a US recession are rising. However, while statistically unlikely, until we see layoffs, it is premature to dismiss the possibility of a reacceleration of growth.
The accompanying 30-minute video is on the MI2 portal, found in the “Podcast and Media Interviews” tab.