Are we really trading recession?
In recent trading days, it is better to say that we are trading the possibility of the Fed making mistakes (slowing down again and again and again) rather than trading recession.
I don’t think this week’s non-farm data is that important
For the market, the basis for the positive sentiment is the expectation of a soft landing, which was supported by economic data before August.
But the data after August is no longer impeccable. No matter how solid it looks after the cracks appear, as long as you don’t repair them, you will always worry that it will break at some point (the stall in the process of economic slowdown).
Although the ISM manufacturing index (employment, price index) released on Monday improved slightly, new orders continued to slow down and hit a new low this year. The control group released last month has dropped from 0.9% to 0.3% per month, which also indicates that the GDP that has been expected by beats has begun to reverse in Q3, and the deceleration is also very fast.
Therefore, it is difficult to expect the lagging non-farm data to bring the market back to the soft landing narrative. If the data this week is good, we will also worry that it will be bad next time. The market environment is no longer the first half of the year.
The important thing is the Fed’s interest rate decision two weeks later
At present and in the future, the reassurance of a soft landing comes from the Fed's determination to support the economy. For September, it is a 50bp interest rate cut.
Last year, it was said that it is not easy to achieve a soft landing in the last mile. The Fed needs to step on the right rhythm, the correct monetary policy plus the correct expectation management.
Finally, the policy interest rate of 5%+ is really too high, which is largely matched by the inflation problem caused by fiscal spending and supply chain. Since there is no worry about inflation for the time being, if it only matches the fiscal policy, it should find a neutral interest rate as soon as possible, rather than hesitating at a high interest rate.