The U.S. nonfarm payroll report for August showed modest job growth, a slowdown in wage growth, and a relatively sharp jump in the unemployment rate, all clear signs that the U.S. labour market is normalizing. In this context the likelihood of the Federal Reserve raising interest rates in September and possibly in November is diminishing.
Financial markets currently assign a probability of 93% the Federal Reserve would keep rates unchanged at its policy meeting on the 19-20 th of September, according to the CME FedWatch tool. Nevertheless, investor expectations for another pause in November are lower at 52%.
Despite more evidence that the tight U.S. labour market is loosening at last, the interest rate futures market remains undecided about whether the Federal Reserve has one more rate hike left in the bag – and still sees 50-50 chance of one more move in November.
Last week’s economic data increasingly gave investors hope that the Federal Reserve could hold interest rates steady this month, following a hike in July that brought rates to their highest level in 22 years. But the Fed hasn’t ruled out additional rate increases, and that could still happen unless inflation slows further.
The Fed has made cooling labour demand a major objective of its tightening cycle, with policymakers hoping that this trend could help slow wage growth and, in turn, alleviate some inflationary pressures.
These recent economic indicators align with the notion that the U.S. economy is approaching a so-called soft landing, reinforcing the belief that the Fed is nearing the conclusion of its interest rate hike cycle.
The impressive rally in the U.S. stock market from the onset of the year could be capped in the near term, as stock prices appear to be too high relative to earnings. Recessionary fears for the U.S. economy are rising, with fiscal and consumer spending likely to decline in 2024.
Investors sold off equities in August, triggering a correction of 9%. The rebound over the past two weeks has reversed course as economic data is showing a rise in inflationary pressures, just as investors were gathering confidence the labour market is cooling and seeing a soft landing as a probable scenario. Investors are once again focused on central bank policy, with inflation and interest rate uncertainty, China’s economic slowdown, and geopolitics further clouding the horizon.
Oil prices have hit their highest level in nine months after Saudi Arabia and Russia, announced they would extend output cuts till the end of the year. Elevated energy prices could push up inflation for services and could potentially extend the Fed’s fight against inflation, which in turn would add more pressure on the U.S. economy.
The turbo charged rally has clearly lost momentum since July, with stocks unlikely to continue to run on high octane in the coming months, meaning that the index is likely to enter a phase of consolidation in the near-term. At this juncture in time only a break below 14,558 would confirm the secondary up trend from the October 2022 low has reversed course and trigger lower levels over the medium-term.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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