In our last proper macro monthly, we anticipated that the Fed would cut the benchmark rate by 50 bps in one fell swoop to inject a dose of confidence into the economy and positively jolt the national narrative. This was against the backdrop of a seemingly steadily weakening labor market with rising unemployment, falling job openings and shrinking monthly NFPs. We also predicted that what we were experiencing was not the start of a genuine recession but merely a “growth scare.”
Both of those expectations proved prescient, as did our immediate change in footing from betting on lower rates in the front end as that 50bps cut got priced in (and a lot more - to a ridiculous degree) to betting against any further 50bps cuts this year and higher rates in SFRZ5.
We have since received news that the US labor market remains stronger than expected. US Q2 real GDP ran at SAAR 3% and Atlanta Fed’s NowCast has Q3 GDP at 3.43%! In fact, the latest US jobs report for September also saw upward revisions to July and August. The rise in initial jobless claims were merely tracking seasonality. Continuing claims continue to trend down with seasonality.