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The Global Markets Weekly – 9/28/18
Fed and U.S. Economy Continue to Diverge from Peers
This week we’ll get an update on the U.S. labor market, coming in the wake of a string of jobs reports that suggest to DE that (1) the U.S. labor market remains on solid footing, and (2) that strong growth conditions can persist for another 2-3 years, better than consensus and Fed expectations. Strong underlying demand, profits, and improved balance sheets are key drivers. Q3 growth is tracking in the high 3% to 4% range on many estimates after 4.2% in the second quarter.
We’ll look for an update this week on what was a small drop in manufacturing payrolls in August, which may be the first sign that tariffs are having an adverse impact—higher import costs mean slower hiring, or at least a wait-and-see approach for some firms.
The Federal Reserve’s response continues to reflect underlying economic strength. A well-anticipated lift in the target range for the fed funds rate to 200-225 bps last week keeps the central bank on course to continue removing accommodation, just as global peers are still grappling with how to best signal potentially adjusting short rates (which are still in negative territory in Europe and Japan) many months out. A raft of country PMI data due Monday will help flesh out the extent and nature of divergence in activity globally, as well as trepidation about the Italian budget from last Friday.
The balance of Fed officials still see another three hikes in 2019, as does DE, and markets are finally back to entertaining some chance of a further hike in 2020 as opposed to a cut. As for the other news in the statement, removing the section on describing policy as “accommodative”, it doesn’t reflect any change in the outlook. As the policy rate creeps closer to a range a number of members feel may be closer to “neutral”, that language is less relevant for a consensus statement. “Neutral” is itself mostly just a helpful academic construct, and the Powell-led Fed has so far been shaping up to be more flexible, practical, and market-cognizant than predecessors.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Sep ISM Man (Tu)
Sep ISM NM (Th)
Sep Payrolls (Fr) Unemployment Avg.Hrly.Earn |
-0.1 to 58.0 /-0.5
+1.3 to 57.0 /+1.1
175K/ 185K 3.9% / 3.8% 0.4% / 0.3% m/m |
Clear rise in manufacturers mentioning tariff risks, but recent reading strongest since 1983, save for one.
Sturdy gain in August, looking for more evidence after hint of manufacturing hiring slowdown in August. |
| China | NBS Man PMI (Mo)
NBS NM PMI (Mo) |
-0.3 to 51/-0.1
unch 54.2/-0.2 |
Some stability recently amid equity bear market. |
| Japan | Q3 Tankan Survey (Mo) | +1 to 22 / +1 | Large manufacturers increasingly confident over the past year. |
| Mexico | Overnight Rate (Th) | Hold / Hold | Trade risks less severe, prior hikes supportive of currency after June drop. |
| India | RBI Repo Rate (Fr) | Hold / +25 bps | Economy growing with inflation under control. |
Research Studies
DE | Sinai Economic and Market Perspectives | Seeds of A Sovereign Debt Crisis Planted – 02/03/21
[private] [/private] Seeds of A Sovereign Debt Crisis Planted Allen Sinai* The U.S. and Global economies have undergone a fiscal/debt revolution of huge import from which there will be no turning away! The main catalysts read more
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