What to expect now that the government has re-opened
Data releases are at least 2 months behind, but we think it's safe to say that the US economy has continued to weaken
- September NFP will be released (and likely old news) however October & November NFP will be released together, but not until after the FOMC meeting on December 10 (October unemployment rate will not be available).
- Even absent official data, the economic situation is unlikely to have improved. In fact, alternative data points to further weakening of the jobs market, and the government shutdown negatively impacted an economy already struggling to grow amid tariff headwinds. More rate cuts are likely warranted given the current environment.
- It’s a close call, but we do not believe the Fed will fully ignore the private sector data which has been pointing to further labor market weakness. We argue that going on hold sometime in Q1 makes more sense. In addition, its year-end and there are signs of liquidity needs. If they do not cut in Dec. that could unnecessarily shock markets.
The lack of data has led to a low vol environment and a lack of conviction among market participants, where to now?
- With US equities, credit and crypto displaying their first major signs of weakness, but US rates markets have yet to benefit from flight to safety flows. We are at a potential important crossroads. We also believe that the anti-seasonals (where performance was probably pulled forward into September and October at the expense of a year-end rally) along with the risk that the Fed does a hawkish cut or worse, skips, could accelerate drawdowns.
Please see the PDF report link above for the full write-up with charts…