Sep 06, 2024
“High Tariffs, Weak Dollar? A recipe for disaster”
Call me superstitious, but some irrational part of me can’t help but think the disappointment surrounding the Nvidia results had wider significance. Like Mary Poppins leaving when the wind changes, sometimes it’s something mundane which, with the benefit of hindsight, signals a shift in sentiment. It’s not that Nvidia never disappoints, but it has come to feel like that recently. And since the Nvidia results, stocks do seem to have lost their mojo, in marked contrast to bonds. Since August 30th, 10s have rallied 17bps, while the S&P future is down 2.5% and several commentators chose to notice that the 2s10s curve is on the brink of disinverting, although at least one chose to play this particular superstition down. Hardly the end of the world, but a reasonable observer might conclude that expectations of a soft landing are being revised to one that’s a little harder.
The data was by no means terrible but it seems the market wanted to view it through a “glass half empty” prism. Jolts certainly jolted, and rate markets took heart at job openings falling to their lowest level since 2020. Quits seemed to confirm the notion of a “more balanced labour” market. ISM manufacturing was also soft (excluding prices paid) and the forward-looking components helped rates markets. Dec 25 SOFR now suggests a 75% probability of at least 275bps of cuts or more. But a “balanced labour market” (whatever that is) wouldn’t seem the strongest justification for 300bps of cuts to Dec 25, so we are clearly trading the prospect of further deterioration in labour demand. Soc Gen produced a bar chart showing total easings priced at the start of the easing cycles (see below). In the circumstances, a lot will be riding on today’s NFP: it’s easy to see how we could get outsized market moves, given that the bond and the equity markets have now convinced themselves that the Fed is coming to their rescue. Maybe they are right.
How many investors are looking at one candidate’s suggestion that capital gains taxes are too low (arguably true) and thinking about whether they should consider taking their gains before the new year? Would Trump’s plan to cut taxes and boost tariffs encourage investors to buy stocks and the dollar? I can think of one guy who didn’t think so but it’s hard to please all the people all the time.
Calvin and Hobbes by Bill Watterson for October 01, 1987 – GoComics
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