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Can Stock Markets Keep Cheering as the U.S. Economy Slows Down?


Stock markets cheer on weak US economic data. They may have second thoughts as fears of a global recession return.

  • Stock markets are rejoicing as weak US economic data boosts prospects for a Federal Reserve rate cut

  • Fears of a global recession will return if the US economy’s resilience appears to falter

  • China’s trade and inflation data highlight fragile global growth trajectory

Wall Street has been in a good mood since weaker-than-expected US labor market data in April breathed new life into hopes for a rate cut from the Federal Reserve.

The report showed that the economy added only 175,000 jobs last month, less than the increase of 243,000 jobs that analysts expected. The unemployment rate unexpectedly rose to 3.9%. Markets are now pricing in interest rate cuts of 36 basis points this year, up from 23 basis points a week ago.

Should stocks cheer with weak US economic data?

Published alongside the jobs report, a study tracking conditions in the US services sector from the Institute for Supply Management (ISM) revealed a shocking contraction in economic activity. The result marks the first expansion failure in the most influential part of the world’s largest economy since December 2022.

Citi_US_Economic_Surprise_Index.png
Citigroup

These worrying results extend a series of disappointments regarding US economic data since mid-April. The downward turn in the US economy that such results indicate would not be at all welcome for overall global growth.

Over the past 12 months, the North American giant has been a mainstay of support amid weak conditions in other major economies.

Purchasing Managers’ Index (PMI) data from S&P Global reveals that China is still struggling to restart after a late exit from coronavirus lockdowns.

Meanwhile, the euro zone just returned to growth in March after nine months of contraction in manufacturing and services sector activity.

The threat of a global recession: is it time to worry?

These three economies, along with the United States, represent about 50% of global GDP. This reduces their contribution to overall output because most of the rest of the world consists of seller economies that depend on demand from the “Big Three.”

Composite_PMI_World_vs._Big_3_Average.png
Standard & Poor’s Global

this week, Unstable trade and inflation data from China It may highlight that it is not in a position to offset the economic downturn in the United States. The trend in Europe has been better so far this year, but growth levels remain slow. Taken together with the United States and China, they add up to April, marking the first time global growth has slowed since October.

This does not seem supportive for the stock markets. A modest shift in the Fed’s policy outlook represents a Pyrrhic victory if it comes because the risk of a global recession reemerges in earnest. If incoming news flows confirm this, last week’s rise in risk appetite could quickly dissipate.

Ilya Spivak, The Head of Global Macro has 15 years of trading strategy experience and specializes in identifying thematic moves in currencies, commodities, interest rates and stocks. Hosts Total money And co-hosts over time, Monday Thursday. @eliasevak

For daily live programming, market news and commentaryvisits com.tastylive Or YouTube channels com.tastylive (for options traders), and com.tastyliveTrending For stocks, futures, forex and macro.

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