Weekly house view | The Fed put is back on
The week in review
Bonds and equities both rallied last week as Federal Reserve Chair Jerome Powell opened the door to interest rate cuts in September and beyond. In a closely watched speech at the Jackson Hole conference, Powell said the balance of risks facing the US economy had shifted, citing downside risks to employment. The move followed data showing a weakening labour market. Powell’s speech came after pressure from Trump for the Fed to cut rates. Trump has also threatened to fire Fed governor Lisa Cook if she does not resign. Replacing Cook would provide Trump the opportunity to appoint a loyalist and tilt in his favour the majority the Fed’s seven-member board, which together with regional reserve bank presidents makes up the 12-member FOMC, responsible for monetary policy. The US administration is also making its mark in the corporate world, saying on Friday it would take a 10% stake in a leading US chipmaker. Results from the world’s biggest retailer showed US consumers are resilient, but the company said tariffs are driving up costs that may see households adjust their spending in the Q3 and Q4. Last week, US 10-year yields fell to 4.25% and the yield curve steepened as 2-year yields fell to 3.7%. The S&P 500i gained 0.3% (in USD). US small caps were the week’s winners as the Russell 2000ii gained 3.3% (in USD).
Quote of the week
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell told the Jackson Hole meeting in a more dovish than expected speech.
Key data
In the US, initial jobless claims rose 11,000 to 235,000 in the week ended 16 August, above expectations. The S&P Global US services PMI fell to 55.4 in August, above consensus expectations for a larger decline. The S&P Global US manufacturing PMI rose to 53.3 in August, also above consensus expectations. UK inflation rose to 3.8% in July, raising concerns for future rate cuts. The euro area’s flash PMI rose to 51.1 in August, driven by a rise in manufacturing output. The services sector softened.
12-month return in USD): 2020, 20.0%; 2021, 14.8%; 2022, -20.4%; 2023, 16.9%; 2024, 11.5%.