News Recap • Week 36 2024

We got a slew of economic data out of the US this week, mostly surprising to the downside and increasing the fear of an imminent recession. All this while the yield curve finally ended its inversion.

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Bad US economic data all around

Let’s kick things off with the ISM manufacturing index. It came in at 47.2% for the month of August, up 0.4 points from July but below the 47.9% forecast. The gauge simply measures the number of companies reporting expansion, so anything below 50% means contraction.

Next up, the JOLTS report for July showed the slowest pace of new job openings in 3.5 years. Economists had expected 8.1 million and only got 7.67 million. This brought the ratio of job openings per available worker down to 1.1, about half of the peak in early 2022.

Then there was the August private payroll number. New private payrolls rose by just 99,000 vs 140,000 expected, the slowest pace since 2021. As a small bright spot, only a few sectors showed actual job losses.

Last but certainly not least, we closed the week off with August nonfarm payrolls on Friday. Unemployment came in line with expectations at 4.2%. However, only 142,000 new jobs were created, falling short of the 161,000 expected.

So what does all of this data tell us?

There’s no denying that the US economy is slowing down. There’s also no denying that this is exactly what the Fed has been actively trying to do for several months now, in its battle against inflation and an overheating economy.

The problem now, however, is that the economy may be slowing too much. And while inflation has come well down from its highs, the battle isn’t over yet. So investors fear the worst of both worlds, i.e., a stagflationary environment where inflation stays persistently high while economic growth is slow.

But while this bundle of data creates a somewhat concerning outlook, we’ll need a lot more data before drawing any conclusions on the state of the economy and the Fed’s attempt at sticking the ‘soft landing’.

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The US yield curve exits inversion

The yield curve finally ended its inversion when the 2-year treasury yield dropped to 3.65% this week while the 10-year “only” fell to 3.71%. The yield curve had been inverted, i.e., with the 2-year providing a higher yield than the 10-year, since the summer of 2022.

This means we’re back to the “normal” state of longer duration being seen as more risky and therefore demanding a higher return on investment. The inverted yield curve indicated the opposite as investors were more worried about the next 2 years than about the longer term.

History tells us that an inverted yield curve, and in particular the end of the inversion, typically precedes an economic recession. Only history will once again show if the pattern holds or if this time is indeed different.

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In other news

• NVIDIA dropped 9% on Tuesday, losing $279 billion in value. This marked the biggest one-day drop in US history.
• Joe Biden was rumored to block Japanese Nippon Steel’s takeover of U.S. Steel.
• Broadcom dropped 7% after disappointing earnings Thursday after hours.
• Japan’s household spending rose just 0.1% in July from the previous year, far below estimates of 1.2%. This was still a reversal from the 1.4% decline in June. The average household expenditure was up 3.3% in nominal terms from the previous year though. Furthermore, average monthly household income jumped 8.9% in nominal terms and 5.5% in real terms from the prior year.
• Donald Trump said on Friday that he will lift sanctions against Russia because they’re hurting the dollar.
• Roaring Kitty posted on X for the first time in two months. The post was an edited still from Toy Story, with the boy dropping Woody on the floor. Only in this one, Woody’s face was replaced by a dog. Chewy initially dropped 2.5% on the news but immediately rebounded. GME rallied more than 8% but quickly retraced most of it.
• James Murdoch, one of the heirs of the Murdoch empire which owns Fox News, pledged his support Kamala Harris.
• Sotheby’s reported an 88% earnings drop in the first half of 2024.
• Salesforce bought privacy and data management solutions provider, Own.
• Safe SuperIntelligence, co-founded by OpenAI’s former Chief Scientist Ilya Sutskever, raised $1 billion at a $5 billion valuation. The company was founded just 3 months ago and doesn’t appear to have a clear business plan, let alone any products or services in development.