Data Rollercoaster
The two key US statistics that have the ability to move US (as well as other) financial markets are inflation data and the unemployment report. The first Friday of June saw the latest release of unemployment data with a much larger non-farm payrolls number than expected (more new people in employment). For many expecting to see signs of a cooling labour market, this was a reason to counter recent thoughts of two potential 0.25% rate cuts from the US Federal Reserve in 2024. The US ten year government bond yield rose 0.15% to 4.45% with UK gilt yields moving upwards in sympathy by 0.12% to 4.30%. Significant moves. By mid-month, and after the release of US inflation data, those same yields were 4.23% and 4.05% respectively.
Regular readers of our written output will know that we find this fixation with the official unemployment data bemusing. It is a volatile statistic subject to large revisions and poorly constructed. Our preference is for more reliable and leading indicators to determine the health of the US labour market.
The following chart from BCA Research tells a different story on US employment. One of declining job opportunities as reported by LinkedIn (recruiter) and LinkUp (accurate job market data provider) in addition to the JOLTS (Job Openings and Labor (sic) Turnover Survey).
A deeper dive into the Unemployment Report published on June 7th also gives a different picture to the market reaction following the data’s release. The following, taken from commentary by Ryan Lemand, PhD tells a more accurate story:
‘However, at the first look at the detailed report, the picture under the hood is bad. In fact, the number of full-time workers has shrunk by 625k, whereas the number of part-time workers has increased by 286k. I suspect, many of the part-time jobs created are held by persons having full-time jobs. The number of multiple job holders is at a historical high. This simply showcases that American households are struggling. Just to add a grain of salt, the number of native-born workers has decreased by 663k, whereas foreign-born workers has increased by 414k. Is this related to the southern border issue?
Unemployment actually rose from 3.9% to 4% despite the big non-farm payroll number.’
Even the Federal Reserve Chair acknowledged the inaccuracy of US employment data:
‘There is an argument that payrolls may be a bit overstated” – Jerome Powell
Last week saw the release of the first of the monthly inflation measures, the Consumer Price Index (not the Federal Reserve’s favoured inflation measure).
Post that release, the Federal Reserve Open Market Committee updated the financial world on their thoughts for US monetary policy going forward. The expectation is for one 0.25bps cut this year and four in 2025.
Thoughts of a softer landing for the US economy came after the release of the much-watched University of Michigan Consumer Sentiment Survey which showed consumer sentiment on the slide as the following graph from Bloomberg illustrates:
The above may be partly due to the impact of higher personal loan rates which is resulting in rising credit card delinquencies. The following charts from BCA Research illustrate the sharp rise in personnel loan rates for US consumers.
It is quite possible that the US Federal Reserve might need more than one rate cut in 2024.
The Bank of England chose to keep rates unchanged at its Monetary Policy Committee meeting in the first week of June. However, a rate cut shouldn’t be too far away given the loosening of the UK labour market and importantly, wage pressures.
Source: NS Partners
Surprise, Surprise
Election outcomes were not entirely as expected in India, Mexico and South Africa. We already knew of the UK election on July 4th and the US Presidential Election on November 5th but the announcement of a French election in July came as a surprise. A calculated risk by President Macron to thwart the right-wing Nationalists. French assets didn’t like it.
Less surprising were the official interest rate cuts from the Bank of Canada and European Central Bank (ECB) with the latter deciding not to give forward guidance (wisely).
Your Money
There has been little activity in the first half of June. The three multi-manager funds have bought into a fund that gives exposure to listed UK infrastructure assets at attractive discounts. This has been funded by trimming either equity assets that have performed well in recent months or trimming gilts exposure in Multi-Asset Growth.
The funds continue to benefit from interest rate sensitivity and, despite global and US equities being dominated by a few mega-cap companies, earnings breadth has increased and with it the share price performance of a number of key holdings within the themes held.