Economy

NFAs slid to 626.6 billion Egyptian pounds in June from 676.4 billion pounds as of end-May. This works out to $13.05 billion at end-June and $14.31 billion at end-May, according to Reuters calculations based on the official central bank currency rate at the time.Egypt has been using its NFAs, which include foreign assets at both the central bank and commercial banks, to help prop up its currency since at least September 2021. NFAs turned negative in February 2022. But in February this year the government boosted its finances by selling the development rights to Ras El Hekma on the Mediterranean coast for $35 billion and in March by signing an $8 billion financial support package with the International Monetary Fund. It also sharply devalued its currency, triggering a flood of portfolio investments and remittances from workers abroad. Foreign assets fell at commercial banks in June but rose at the central bank, while foreign liabilities rose at both commercial banks and the central bank. More

WASHINGTON/HANOI (Reuters) -The U.S. Commerce Department announced on Friday it will continue to classify Vietnam as a non-market economy country, a decision disappointing to Hanoi, which the U.S. has been wooing in its efforts to push back against China.Vietnam has long sought an upgrade, which would have reduced the punitive anti-dumping duties levied on non-market economies marked by heavy state influence. Only 12 other economies are labeled as non-market by Washington, including China, Russia, North Korea and Azerbaijan.A change in status has been opposed by U.S. steelmakers, Gulf Coast shrimpers and honey farmers and members of the U.S. Congress representing them, but backed by retailers and some other business groups.”Today, the U.S. Department of Commerce announced its determination that Vietnam will continue to be classified as a non-market economy country for purposes of calculating U.S. antidumping duties on imports from Vietnam,” the department said in a statement after a year-long review.”This finding means that the methodology used in calculating U.S. antidumping duties on imports from Vietnam remains the same,” it said.Vietnam’s Ministry of Industry and Trade said upgrading Vietnam would have been an objective and fair move.”Vietnam regrets that despite several positive improvements in the Vietnamese economy recently, the U.S. Department of Commerce still has not recognized Vietnam as a market economy country,” it said in a statement.Vietnam has long argued it should be freed of the non-market label because of recent economic reforms, and it has said that retaining the moniker is bad for increasingly close two-way ties that Washington sees as a counterbalance to China.Opponents of an upgrade have countered that Hanoi’s policy commitments have not been matched by concrete actions and it operates as a planned economy governed by the ruling Communist Party. They say Vietnam is increasingly being used as a manufacturing hub by Chinese firms to circumvent U.S. curbs on imports from China.A 284-page Commerce memo explaining the decision said it was taken despite Vietnam’s “impressive reforms and economic growth.”BLOW TO CLOSER TIESWashington has worked hard to foster closer ties with Vietnam in the face of growing strategic competition with China and the issue of whether to upgrade Vietnam has been awkward given the approaching U.S. election in November and claims by each side that they stand for worker rights.Some analysts said before the announcement a failure to upgrade Vietnam could be negative for U.S.-Vietnam relations.”Vietnamese leaders have seen this decision as an important benchmark in their improving relationship with the U.S. and the achievement of normalization between the two countries,” said Edmund Malesky, a professor of political economy and director of the Duke Center for International Development.Murray Hiebert, a senior associate of the Southeast Asia Program at Washington’s Center for Strategic and International Studies, called the decision “ridiculous.””Vietnam’s market is as free as many others not on the NME list,” he said, adding that the decision seemed “out of whack” with U.S. President Joe Biden’s visit to Hanoi last year, when the two sides elevated ties to a comprehensive strategic partnership.U.S. Treasury Secretary Janet Yellen has also promoted Vietnam as a “friend-shoring” destination to shift U.S. supply chains away from China.Hosuk Lee-Makiyama, director of the Brussels-based European Centre for International Political Economy, said that even if the Biden administration were to have taken the politically risky step of upgrading Vietnam, it would have been a pyrrhic victory given that any future Trump administration was certain to reverse it.Nazak Nikakhtar, a former Commerce Department official in the Trump administration now with the Wiley Rein law firm, said the decision reflected “ample” evidence from industry groups “that Vietnam’s economy has not transformed to the extent that would warrant treatment as a market economy.” “Ignoring distortions in the economies of trading partners is unfair and prejudicial against American interests,” she said. More

LONDON (Reuters) – The Bank of England’s first interest rate cut in more than four years will help to foster a cautious sense of optimism about Britain’s long-struggling economy, but the scale of the growth challenge facing the new government remains huge.The BoE lowered its benchmark rate to 5.0% on Thursday, from a 16-year high of 5.25%, offering a bit more relief to households and businesses who are emerging from the inflationary shocks of the COVID pandemic and Russia’s invasion of Ukraine.Data published a few hours before the BoE announcement showed British manufacturers enjoyed a stronger July than their peers in much of the rest of Europe and Asia.British shares (L) – which have underperformed since the 2016 Brexit vote – added to recent gains after the BoE’s rate cut, with the FTSE 250 index of medium-sized firms hitting its highest since February 2022, before following other markets and falling later in the day on worries about the U.S. economy.The lowering of Bank Rate from its 16-year high and the signs of economic recovery after a shallow recession in 2023 are helpful for new Prime Minister Keir Starmer, who has made economic growth – chiefly via reforms to boost the country’s weak productivity growth – the top priority of his government. BoE Chief Economist Huw Pill, who voted to keep rates on hold, welcomed the improved outlook for the economy, even if it still represented a historically tepid pace of growth at around 1% a year between 2024 and 2026.”That sort of rate, you know, that’s better than what we’ve seen,” Pill said. “But at the same time, I think it’s fair to say it’s not something that we should get too complacent or enthusiastic about.”Michael Browne, chief investment officer of Martin Currie, part of asset management group Franklin Templeton, said the likelihood of further BoE rate cuts would help to foster the sense of turnaround in Britain.”In this environment, we continue to favour the interest rate-sensitive sectors of house builders, real estate, utilities and in particular the green energy sector,” he said.REASONS TO BE CAUTIOUSThe BoE’s announcement came three days after finance minister Rachel Reeves announced a big public sector pay rise in the first move of her economic policy programme that seeks to double Britain’s pace of economic growth to around 2.5% a year.But there are a host of reasons for continued caution.The narrow 5-4 vote in favour of a rate cut by the BoE’s Monetary Policy Committee underscored the extent of inflation risks still hanging over the economy.Governor Andrew Bailey was at pains to stress that the BoE was not at the start of a series of swift cuts to borrowing costs, saying the stronger performance of the economy in recent months could keep inflation risks on the radar.Suren Thiru, economics director at accountancy body ICAEW, said the rate cut marked a notable shift in direction but the financial reality facing households and firms had not changed.”This is just one step back from the previous period of 14 rate hikes,” Thiru said. Investors are fully pricing only one further cut to interest rates by the BoE later this year.At almost 6%, wage growth is running at about double the rate that would normally be consistent with the central bank’s 2% inflation target.And while the BoE sharply raised its forecast for Britain’s economic growth in 2024 to 1.25% from a previous 0.5%, potentially putting it ahead of France and Italy, as well as Germany – that improvement reflected the stronger start to this year rather than a rethink about the outlook.The central bank left unchanged its estimates for growth in 2025 and 2026 at 1% and 1.25%, less than half the average before the 2007-08 global financial crisis. In her response to the BoE’s interest rate cut, Reeves stressed the hard road ahead, with borrowing costs still putting pressure on many households and the public finances under strain, raising the likelihood of tax increases in her first budget in October.”That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth,” she said. More

NEW YORK (Reuters) – Richmond Federal Reserve President Thomas Barkin said he is not ready to change his monetary policy outlook after the release of unexpectedly weak U.S. jobs data on Friday, even as Wall Street shifted toward expectations of aggressive interest rate cuts.”The job growth was weaker than what most professional forecasters had forecast,” Barkin said in the transcript of a TV interview with the Carolina Business Review. But even with the softer turn in July hiring data, “I don’t try to prejudge meetings,” as he shrugged off providing guidance on rate cuts. “We’re going to get a lot of data between now and September,” he told the PBS program. “Two whole rounds of jobs reports, two whole rounds of inflation readings, a lot of activity metrics,” Barkin said, adding “we’ll make the best decision we can when we get to September.”Barkin’s comments were his first since the Fed decided on Wednesday to leave its benchmark interest rate in the 5.25%-5.50% range, but open the door to a rate cut in September amid a slowdown in inflation and cooling job market.That outlook, announced after the end of a two-day policy meeting, got a huge jolt from the release of the Labor Department’s monthly employment report for July, which showed a smaller-than-expected gain of 114,000 jobs and a rise in the unemployment rate to 4.3%, from the prior month’s 4.1%.Many economists moved to forecast a more aggressive rate-cut path, with some eying the possibility of a half-percentage-point reduction in borrowing costs rather than a quarter-percentage-point move next month. J.P. Morgan economists wondered if the Fed would need to ease ahead of that meeting given the possibility the labor market is running into trouble faster than expected. Some even contended it was a mistake for the Fed not to cut rates at this week’s meeting, which a number of analysts said was justifiable given easing inflation data. Barkin brushed off the idea the central bank had made a mistake and said “I always assume there will be an equal amount of criticism no matter what we do. And so if we had moved at the last meeting, we would’ve gotten an equal amount of criticism that said we moved too quickly.” Barkin said the U.S. job market is still solid by most standards, noting the rise in the unemployment rate in July was “pretty normal” on a historical basis and the level of joblessness was still low.”We’ve been through two years, two and a half years of very frothy labor markets,” Barkin said, “and so we’re headed back down toward normal.”On the inflation front, Barkin said “my gut is that it’s normalizing.” He added, “on the employment side, I think it’s harder to know.” More

The new forecast is still above the specific long-term inflation goal established by the central bank, of 3%.For 2025, the technical team at the central bank expects inflation at close to 3%. The team’s considerations are taken into account by the bank’s board of directors for its monetary policy decisions. “In the remainder of 2024 and towards 2025, levels of economic activity could continue to recover, in an environment of external financing conditions that gradually become less tight and a less restrictive monetary policy,” the report said. Colombia’s 12-month inflation through the end of June was 7.18%.For the second quarter of 2024, the technical team forecast growth of 1.8%. The government’s DANE statistics agency will publish second-quarter growth data on Aug. 15.On Wednesday, Colombia’s central bank cut its benchmark interest rate by 50 basis points to 10.75%, its sixth cut since December. More

Here is your look at what’s big in markets in the coming week, from Lewis Krauskopf in New York, Rae Wee in Singapore, Kevin Buckland in Tokyo and Maggie Fick and Amanda Cooper in London.1/A TIPPING POINTAround half of the world’s developed-market central banks have started cutting interest rates – the Bank of England did so on Aug. 1 and the Federal Reserve is teeing up a cut for September. Global stocks, crypto and bonds have been rallying this year in giddy anticipation of central banks finally lowering interest rates, while inflation and economic growth gently tail off from their post-COVID highs.So far, so good. Recession appears unlikely. Earnings have been decent, with more beats than misses. The problem is when assets are “priced to perfection”, it does not take much for disappointment to set in. And thin summer markets often mean more volatility.Weaker readings of U.S. business activity and employment have prompted investors to assess whether rate cuts are a reflection of an economy that is weaker than they bargained for and it is time to take some money off the table. 2/MORE EARNINGS TO MULL    A U.S. corporate earnings season that has come in better than expected so far gets a fresh test in the coming week, with a number of high-profile reports due.    With more than half of S&P 500 companies having already reported, second-quarter earnings are on pace to have climbed 12.6% from a year earlier, LSEG IBES data showed on July 31. That is better than the 10.6% increase expected for the period on July 1.    So far, 78.4% of companies have topped analyst estimates for earnings, nearly the same beat rate as in the prior four quarters.    While most of the megacap companies will have reported already, other important results are expected in the days ahead. Those include industrial bellwether Caterpillar (NYSE:CAT) , media and entertainment giant Walt Disney (NYSE:DIS), weight-loss drugmaker Eli Lilly (NYSE:LLY) and Super Micro Computer (NASDAQ:SMCI), which is at the centre of the market’s artificial intelligence excitement.3/ROCKY PATHA slew of economic releases from China will reveal how its shaky recovery is taking shape in the second half of the year and chances are, the picture still is not going to be particularly rosy.The week begins with a private-sector survey on services activity, followed by trade data on Wednesday and a reading on consumer prices to round off the week.Recent Chinese data continues to point to a gloomy outlook, and a growing sense of urgency in Beijing’s efforts to shore up the economy has since been reflected in its surprise rate cuts, with investors betting on more to come.Officials will be keeping a close eye on Friday’s inflation report for clues on how much more needs to be done to bolster anaemic domestic demand, especially after policymakers signalled their support for more consumer-directed stimulus measures.4/WEIGHTY RESULTSNovo Nordisk (NYSE:NVO), Europe’s most valuable company, releases its second-quarter results on Wednesday. The company’s fortunes – and shareholder returns – have soared with the blazing success of its weight-loss drug Wegovy. Its market value has risen by $380 billion since it launched the anti-obesity injection three years ago, to $572 billion. The top questions for investors and analysts are: manufacturing capacity and supply. Novo and Eli Lilly and Co, the only other company, for now, with a rival obesity drug on the market, face the same challenge: increasing production of these medicines, which are delivered weekly in a self-injection pen.Lilly, which reports on Thursday, has quickly gained ground on Novo since launching Zepbound in December.Novo accounts for almost 4% of Europe’s STOXX 600, so its results carry more weight for the broader index than ever.5/CPI FLIPS RBA SCRIPT    From an outside chance of a rate hike at the Reserve Bank of Australia’s Aug. 5-6 policy meeting, traders switched to pricing in the risk of a rate cut by year-end instead – all because of one soft inflation reading.    The Aussie dollar skidded to a three-month low and stocks surged to a record high, after core inflation unexpectedly slowed to a two-year low.    This will be very welcome news at the central bank, which would have been very reluctant to raise rates already at a 12-year high amid flatlining economic growth, moribund consumer spending and a weakening labour market.     Traders now put the odds of a rate cut at a coin toss for November, much sooner than the RBA’s assumed timing of possible easing – around the middle of next year should inflation continue to slow as desired. More

The S&P 500 ended 1.84% lower and the Nasdaq Composite index closed down 2.43%, putting it on track to confirm it is in a correction following worries about pricey Big Tech valuations and as weak employment numbers aggravated worries of a slowdown. LAMAR VILLERE, PORTFOLIO MANAGER, VILLERE & CO, NEW ORLEANS”We’ve been looking especially in the Big Tech area for a summer pullback and we’ve been surprised it took this long. We’ve been looking to potentially get into some of those expensive names and frustrated we haven’t had an opportunity, and now we’re getting there. We maybe are not quite there but these things are getting a little more realistic valuation wise. “Obviously the jobs number is the big headline. But we seem to have officially entered at least a rational world where bad economic news is read as bad rather than bad economic news is read as good… I think the Fed is going to cut and we’re all sort of adjusted to that. That is sort of established… Now it’s more like, hey, did they wait too long? Do we have a recession on our hands?”JOSH WEIN, PORTFOLIO MANAGER, HENNESSY FUNDS, CHAPEL HILL, NORTH CAROLINA”A month ago, the expectation was less than two rate cuts by the end of the year and now the expectation is, statistically, more than four… So I think that quick adjustment has given people reason to think well maybe the Fed has waited too long and that we’re going to slow down more than we had thought. I don’t agree with that, but I think that’s the consensus, and that’s what’s driving things lower. The offset to all of that is a 10-year that is lower by about 30 basis points in the last week. I would rather follow that than all of the noise. I think the (stock) market is in great shape.”MICHAEL FARR, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FARR, MILLER & WASHINGTON LLC, WASHINGTON, DC“Markets are having a short-term emotional reaction to today’s economic data. And today’s economic data on employment were weaker and showed a slowdown in hiring and in wage growth. That has people worried that the Fed has kept rates too high for too long and in doing they have slowed the economy to the point where we may be heading towards a recession. Now that’s part one. The part two is that the market for the past several months have one through a series of all-time highs on great exuberance and enthusiasm for about 6 or 7 stocks that have going higher and higher: Nvidia (NASDAQ:NVDA), Meta (NASDAQ:META), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), etc. With such great profits and a little bit of fear, profit-taking feels good in the moment. I don’t think this is the end of the world. It’s one month’s datum. It has been a trend in a labor market that has been normalizing. So there are these signs and more data to suggest that perhaps, if now it seems like short term fear and a bit of an overreaction by markets.”“Professionals will look at that 3.80% on the 10 year Treasury. That’s a huge move in the 10-year Treasury, we were at 4.25% 10 days ago. That’s a big move when you get a 44 or 45 basis point move in the yield of the 10-year Treasury. This is big. So it certainly looks like there’s a fear trade there. That there is a bit of a flight to safety and also an expectation that really seems to lock in a fed cut in September.”STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK NY BRANCH, NEW YORK“There’s no silver lining (in the jobs data) anywhere as far as I can tell. They say they didn’t have any kind of hurricane effects, and if they did, it’s not enough to offset the degree of softness that we’re seeing and I think particularly the unemployment rate is what people are keying off and historically when you see this kind of move, it suggests that things are slowing.”“The only question is that most of the other indicators are not consistent with a really sharp slowdown at the moment. I mean, everything is soft, but nothing is catastrophically soft. This set of numbers stands out and obviously they’re important numbers, but I think it will matter if they’re supported by other numbers that come out in the course of the next few days… to see if the weakness we’re seeing here is matched by everything else”“In the last couple of days we’ve seen this real ramping up of fears that the U.S. economy is slowing down at a precipitous pace, much more so than any slowing we saw, say, in the first half of the year, and any slowing that’s embedded in the Fed forecasts and most of the market forecasts.”“Some of the bond market moves – the lower bond market yields is the path of least resistance because we have both soft economic data and geopolitical concerns in the Middle East. Both of them tend to push bond yields down so I think that’s part of the reason they’ve moved so sharply. But I’d say in the last couple of days the market has become really concerned about the slowing in the U.S. economy and when you look at the yield curve, they were badly positioned for it. What they were priced for was for kind of a gradual sort of slowing. And again, we’re not convinced that this is the case, but it’s clear that this is what the market is buying into now – that the pace of slowdown is going to be sharper.”MICHAEL HARRIS, PRESIDENT, QUEST PARTNERS, NEW YORK“The Federal Reserve has a dual mandate: right price stability is number one, and number two is focusing on a strong labor market. They haven’t really had to worry about the labor market for quite a while. Their focus has been 100% on price stability and inflation. Now that inflation seems to be getting closer to their target, we’re starting to see unemployment get worse. So this is that sweet spot for rate cuts.”“I don’t think we have enough data points yet to tell us that we’re heading for a recession, but I do think that the fear of a recession is what’s driving markets”ART HOGAN, MARKET STRATEGIST, B. RILEY WEALTH:“This isn’t a category 3 hurricane, but we are seeing how markets react to signs that the economy is normalizing after turning hot in the first half of this year. The path to normalization is never going to be smooth, and we’re just not used to what ‘normalization’ feels like. Markets can find themselves overreacting and investors glom on to anything as an excuse to take profits.”Tech stocks “led the way up and valuations got stretched. The good news is that though Nvidia may be down 30% or so from peak to trough, the S&P 500 is only down a fraction of that amount. There’s a rotation as well as a selloff.”YUNG-YU MA, CHIEF INVESTMENT OFFICER, BMO WEALTH MANAGEMENT (FROM NOTE)”A 50 basis point Fed cut in September is clearly justified as the labor market is now showing clear signs of softening. The Fed is already falling behind the curve and rates are overly restrictive – a 50 basis point cut in September would only be catching-up to, rather than getting ahead of, the curve.”MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON“There are three thing driving this selloff. August is notoriously a difficult month for markets, and we went into it with markets priced for perfection, particularly the Magnificent 7 stocks. Even beating expectations on both the top and bottom lines wasn’t enough this quarter, at these valuations.”“Ultimately, cooler heads will prevail. Corrections are normal, and this is a garden variety correction. For it to wane we’ll need continued good earnings growth and some economic data that stops the tide of recession fears. If you can get some of that, this correction will begin to wane.”“It’s important to keep an eye on credit spreads moving forward. That will be an important barometer for the economy and how people feel about business risk. They have widened significantly, but they’re not blowing out in the way that they would if there was something underlying wrong.”MATT ROWE, HEAD OF PORTFOLIO MANAGEMENT AND CROSS ASSET STRATEGIES, NOMURA CAPITAL MANAGEMENT, NEW YORK “In summary, the jobs report is being treated as an inflection point. Today, the bad news is being treated as ‘bad news’. Prior to today, bad economic data was treated as a positive as it increased the likelihood of a rate cut and that fueled equity beta appreciation.”DAVID WAGNER, HEAD OF EQUITIES & PORTFOLIO MANAGER, APTUS CAPITAL ADVISORS, OHIO“It all comes down to growth and what we’ve witnessed over the past two days is a continued trend in lower manufacturing PMIs and a weaker-than-expected jobs report that could call into question that the lagging effects of monetary policy are really starting to form and that the Fed may need to become more reactionary than proactive. “BRIAN MULBERRY, CLIENT PORTFOLIO MANAGER, ZACKS INVESTMENT MANAGEMENT, CHICAGO“The only clear definable trend is the softening labor market leading to a decline in manufacturing leading to weaker than expected forecasts as Q2 earnings come out…With so much return attributed to so few stocks, this kind of volatility was very probable. We have also seen the broader market lower forward guidance under the high cost of capital and believed it was only a matter of time before it happened to the Mag 7 stocks too. This week’s earnings have shown that several of them are not growing as fast as anticipated.”“There is a silver lining here. With yields now pulling back below 4%, they are travelling down to a much more competitive level with our long-term Dividend yield of 3.4%. Remember there is still $5 Trillion in money market accounts that could be looking for better treatment if the Fed does cut rates.” MATT LLOYD, CHIEF INVESTMENT STRATEGIST AT ADVISORS ASSET MANAGEMENT“What’s happening today is the realization that there are undercurrents, whether it’s the job market or consumer sentiment or the election volatility, that could be changing the reason why the Fed is cutting from inflation to a weakening economy.”“You’re seeing decent earnings but the revenue numbers are not robust. You’ve had high retail allocations into equities and you’re getting a shakeout that will churn here for a while.”MARK TRAVIS, PORTFOLIO MANAGER, INTREPID CAPITAL“This market has been heavily concentrated and people are realizing now that they did not have the valuation support to keep buying at those levels.”“People are starting to reassess what their risks are and whether they are properly positioned.” TOM PLUMB, CHIEF EXECUTIVE AND PORTFOLIO MANAGER AT PLUMB FUNDS, MADISON, WI: “This is an old fashioned correction going on and it’s obviously not something that anyone anticipates the moment it starts, or even when it’s going (to) end, but it’s just not that unusual as we passed the economic torch from the perception of growth to the perception of needing government intervention with lower interest rates to stabilize the economy.”As we go through the fall and we start to see some impact of the Federal Reserve taking actions (in terms of rate cuts), we can see a recovery from the 16,600 levels right now to well over 18,000 by the end of the year.”CLAUDIA SAHM, CHIEF ECONOMIST AT NEW CENTURY ADVISORS AND FORMER FED ECONOMIST, ARLINGTON, VIRGINIA: “The Fed, because it hasn’t started to normalise yet, has a lot of room to step in and take some pressure off the economy. This is not a crisis moment. We still have a strong economy, it’s just slowing in a way that needs to get under control. Given that (the Fed) has been slow to start their interest rate reductions, doing some catch up in September could make a lot of sense. They’re going to want to be – appropriately so – deliberate in their actions. “We don’t need a Federal Reserve that is in crisis mode. We’re not in a crisis, just… action needs to be taken… And I think that’s what will happen. It’s exactly how they will calibrate it will be a question. It’s unfortunate that September feels a long way away right now.”SOLITA MARCELLI, CHIEF INVESTMENT OFFICER AMERICAS, UBS GLOBAL WEALTH MANAGEMENT (IN A NOTE): “US equity markets had been enjoying an unusually smooth rally until the middle of July. The S&P 500 had gone more than 350 trading sessions without a drop of more than 2%—the best run in 17 years. A return to higher levels of volatility was to be expected, especially as the Fed approaches the start of a cutting cycle and as investors await guidance from top tech firms on whether their heavy investments in AI are paying off. Meanwhile, political uncertainty remains elevated, especially ahead of the US presidential election in November.” CHRIS BEAUCHAMP, CHIEF MARKET ANALYST AT ONLINE TRADING PLATFORM IG (IN A NOTE): “In the space of barely two days markets have gone from looking forward to a Fed rate cut in a growing economy to fretting about an impending recession. Today’s huge payrolls miss and the surge in the US unemployment rate has sparked a fresh flight from risk assets already reeling from some poor earnings reports and concerns about a wider conflict in the Middle East. Investors are now hoping for a 50bps rate cut in September, but worry that even this will be too little, too late to stave off a US recession.”MICHAEL PURVES, CEO, TALLBACKEN CAPITAL ADVISORS, NY“This is a good excuse for investors to sell after a huge year to date rally. Does this weaker jobs number portend a recession that’s coming two quarters from now? There’s a lot of conflicting data.”“Investors should be prepared for some major volatility, particularly in the big tech stocks. But it will probably be short-lived. The earnings reports haven’t been blockbuster, but they haven’t been bad either.” More

Nonfarm payrolls increased by only 114,000, missing economist expectations for 179,000, while the unemployment unexpectedly tick up to 4.3% from 4.1%. The household survey registered just 67,000 new jobs. The significant decline pushed the job growth below the breakeven rate employment growth, or the pace required to ensure that the job gains keep up with the pick-up in population growth to avoid a big downtick in the unemployment rate. If Friday’s job numbers are “accurate, then it signals a sudden deceleration of job growth to a pace that lies beneath estimates of the required breakeven pace in relation to the pick-up in population growth,” Derek Holt of Scotiabank Economics said in a Friday note.  “I’m calling bogus on the number,” Holt said, flagging pandemic-era seasonal adjustment factors as the likely cause behind the weakness, particular at this time of the year.The Fed’s seasonal adjustments aim to filter out distortions like the annual hiring surge by retailers ahead of the holiday shopping or the slowdown in construction hiring during the winter months, providing a more accurate gauge of the employment situation. But the pandemic-era hits to the labor market muddied those adjustments, and continues to distort the data, Holt argues. But if the pre-pandemic seasonal adjustment factors for the months of July up to and including 2019 were used, then “this July’s nonfarm payrolls would have been up by about 200k instead of 114k,” Holt said.Others, however, believe that the pandemic-era-ladened seasonal adjustment factors aren’t to blame in this July’s nonfarm payrolls report. While Jefferies has long taken issue with the seasonal adjustment process in the post-pandemic era, it believes that the seasonal adjustments “was typical for July.””We have noted in many prior commentaries on the labor market data that the seasonal adjustment process in the post-pandemic era has been difficult and may be skewing the headline figures. This month, we have no such concerns,” it added.But just as many are calling on the Federal Reserve to deliver aggressive cuts of 50 basis points at the September meeting, Holt believes that may not reflect the Fed’s thinking as chairman Jerome Powell has reiterated that he would look the totality of the data rather than a single report. Jefferies agrees and believes that while rate cuts are likely coming in September and December, it doesn’t “think that the Fed will continue on a meeting by meeting pace of cuts thereafter,” as there is no evidence to suggest a recession is on the horizon. “The market is pricing in a path of rate cuts that the Fed will only meet if there is evidence that the economy is falling into a recession. Right now, there is no evidence to support that,” Jefferies said. More