One of the puzzles of the global economy are the long lead lags on monetary policy. Rates were only raised last March by the Federal Reserve. In addition, fiscal stimulus in the US was underrated including the inflation reduction act and Chips act cushioned the economy as the US and other regions as well experienced a manufacturing capex boom as some supply chains begin to relocate. Labour hoarding of course remains with a still resilient employment market with unemployment near decades lows of 3.6% in the US and 6.5% in the Euro-zone. In that light, interesting some of the recent data points.

 

• Last Friday For the first time in 15 months, US non-farm payrolls missed expectations at +209k versus expectations of +225k. This was in contrast to the ADP figure which beat expectations. Revisions to prior months were also negative and over the last 3 months average has come down from +244k from +283k. We may be finally seeing an impact on jobs growth from higher rates given the normal lags. Many of the job gains happened in health-care and government not other sectors. Average hourly earnings rose slightly more than expected at 4.4% vs. 4.2% expected, highlighting the challenge for the Fed. We expect a rate rise at the next meeting and then be on an extended pause.

 

• Taiwan exports had another large downside negative surprise in June exports. Why focus on Taiwan? As Taiwan exports re often a lead indicator given its embedded nature in global supply chains. The exports dropped -23.4% year-on-year and -6.6% month-on-month in June. Technology exports fell -11.4% month-on-month and fell across most categories including metals, and machinery & transport.

 

• Europe economic surprise index continues to miss with the PMIs including French and German last week.

 

• Given uneven growth the focus will be on China what level of fiscal stimulus will be put in place in the upcoming Politburo and Plenum meetings later in the year?

 

To be clear global central banks will welcome some slowing in the economy just too much. US 5-year real rates are rising. Indicators watch for a steepening in the yield curve as we had in March?. We could have just had another double bottom in US 10-2 year yield curve inversion at over -100 bps last week before steepening from lows after the weaker data to -86bps. Also, the impact on earnings in terms of the outlook on the upcoming reporting season will be watched. Whether the data continues to weaken or not will be key in terms of a pattern and path of yields after the recent rise. This will also be key to our moderate recession forecast in the US next year and slowdown elsewhere. 

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