Some good news on US inflation: 1-year inflation expectations declined to 4.9% in August, the lowest since the pandemic in 2020, according to the Conference Board Consumer Confidence Survey.
Over the last 2 years, inflation expectations have fallen from ~8.0% to 4.9%, recording a similar drop as during the 2008 Financial Crisis. As a result, expectations are now at levels seen in the 2015-2019 period. Furthermore, 1-year inflation expectations in the University of Michigan consumer survey fell to 2.8%, the lowest since December 2020. Source: The Kobeissi Letter
Recessions are Bad for Stocks...
-but only during the first part -stocks do well in the later stages Basically you need to lighten exposure into recession, then load up in the depths. Source: Schroders thru Callum Thomas
BREAKING: 90% of US cities saw a rise in year over year unemployment rates in July, according to the BLS.
Jobless rates jumped in 350 of the 389 metropolitan areas last month. Additionally, in 8 large metro areas with a population of 1 million or more, FEWER people held a job in July 2024 than in July 2019. At the same time, average weekly wages DROPPED in 43% of the 389 metropolitan areas. In 5 of the 8 highest-paying areas with average weekly wages above$1,400, salaries declined year-over-year. The US labor market is weakening. Source: The Kobeissi Letter
BREAKING: Odds of a 50 basis point interest rate cut at the September Fed meeting rise to 23%
There's now a 95%+ chance that interest rates are cut in September with a 78% chance of a 25 bps rate cut, according to @Kalshi Source: The Kobeissi Letter
The Bank of Japan (boj) is still on a path toward higher interest rates provided inflation and economic data continue in line with its forecasts
“If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there’s no change to our stance that we’ll continue to adjust the degree of easing,” Ueda said in response to questions in parliament Friday. Source: Bloomberg
Fed Funds Futures pricing in nearly 200 bps of cuts over the next year, which seems quite aggressive and presumes a rather hard landing scenario
Based on current macro data, there's no reason for the Fed to cut this aggressively. Let's see how Powell manages it today at jacksonhole. Source: Markets & Mayhem
BREAKING: The share of people who believe they will become unemployed in the next 4 months jumped to 4.4%, the highest on record
This is a significant surge from the 2.8% share seen in March 2024, according to the NY Fed job situation and outlook survey. At the same time, the share of workers who reported searching for a job in the last 4 weeks increased to 28.4%, the highest since the survey began in 2014. This was also up 9 percentage points from 19.4% recorded in July 2023. Further evidence the labor market is weakening. Source: The Kobeissi Letter, Bloomberg
Fed rate cuts are imminent...
Here's a quick recap of the FOMC minutes... ▪ Fed Minutes said risk to inflation goal had decreased. ▪ The FOMC minutes indicate a "likely" rate cut in September as most Fed members are leaning towards a rate cut at the next meeting—if the data stays positive. ▪ July Debates: SEVERAL PARTICIPANTS SAID RECENT PROGRESS ON INFLATION AND INCREASES IN THE UNEMPLOYMENT RATE PROVIDED A PLAUSIBLE CASE FOR A 25-BASIS-POINT RATE CUT AT JULY'S MEETING OR THAT THEY COULD HAVE SUPPORTED SUCH A MOVE. ▪ ⚠️ Rising Unemployment Risks: Fed believed the labor market is in a better place but payrolls were overstated (made sense given the 818k job revision today). The majority are concerned about increasing unemployment. 📉 Economic Growth Downgraded: The outlook for growth in the second half of 2024 has been revised downward. Fed believed consumer spending did start to weaken based on delinquencies going up ▪ 📊 Inflation Confidence: Recent reports have strengthened the Fed’s belief in managing inflation. ▪ 🕰️ Timing Matters: Delaying easing could significantly weaken the economy. => The first rate cut since 2020 likely coming next month. => S&P 500, Nasdaq close higher as Fed minutes lift investors’ hopes for a September rate cut!
