Global: Uncertainties abound. Noting that the signs of US labour market cooling are “unmistakable” and that the Fed does not “seek or welcome further cooling,” Fed Chair Powell sealed the path for forthcoming rate cuts in his Jackson Hole speech last week. Fed Funds futures pricing is for hefty cuts ahead, at least 200 bps over the next 16 months, but we think this reflects undue pessimism; we remain in the camp that the economy’s slowing can be countered with less policy easing, more akin to two cuts this year and four next year (150 bps in total).
Global market unrest has abated after the early-August sell-off and spike in volatility, but we believe conditions for further currency market gyration remain and may well become more elevated in the coming months. Looming Fed rate cuts, uncertainty over the US election outcome, and steady withdrawal of liquidity that ballooned during the pandemic years continue to weigh on sentiment.
PCE deflator (that will be released tonight, 30 Aug) has become less relevant given the Fed’s priority to prevent further cooling of the US labour market. Although the Conference Board’s Consumer Confidence Index increased further to 103.3 in August from an upwardly revised 101.9 in July, consumers are more concerned about the labour market. While still positive, consumers’ assessments of the current labour situation continue to weaken and are more pessimistic going forward. This likely reflects the recent increase in unemployment. On a more positive note, the expectations index signalled less concerns of a recession ahead by pushing above 80 to 82.5 in August from an upwardly revised July to 81.1.
Figure 1: Sentiment has improved slightly though concerns on the labour market have grown
Source: The Conference Board, DBS
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