00:00The way we think about it is the Fed's probably going to cut rates in December. The signaling out of some very senior very important people particularly the New York Fed president suggests that the Fed's very focused on the weakening in the labor market recently. And although we don't have nonfarm payrolls data we do have the ADP data. We do have continuing claims. All of that points toward a labor market that's really largely stagnated. The September bounce up in payrolls.
00:30Is probably not going to be sustained in October and November. And so the Fed's likely to cut. I think they'll probably couch it in terms of an insurance cut and try to signal to markets that from here they're going to try to pause for a while. But ultimately they're likely to keep going in 2026. And that's one of the things that will keep equity markets and risky assets performing pretty well.
00:54How concerned should we be about the signals we've seen of weakness in the retail sector in the U.S. in particular.
01:05A bit but not massively. The fact is that historically it's really investment that leads the economy into recessions and the durable goods orders overnight were quite strong.
01:20It's clear that the AI investment AI infrastructure investment boom is going to continue. The companies have got the money. They've got the funding and crucially they have the will to continue to invest.
01:32The durable goods order suggests there's a little bit of a broadening out in investment not just electronics. I'm not going to say that that's going to be particularly powerful but there seems to be a bit of broadening of investment growth.
01:45And that makes sense given that S&P 500 profits have grown pretty strongly. Profit growth is one of the best leading indicators of investment growth. Consumption is going to be bifurcated. It has been for a while.
01:59It's reflecting the big division in the United States between in essence the haves and the have nots. Wealth effect gains in the upper income sector of the economy have been very strong.
02:10And that's really what's driving consumption below that middle class lower middle class is weak.
Be the first to comment