Tomorrow, a preliminary estimate of the US Manufacturing Purchasing Managers’ Index (PMI) for September is anticipated to increase slightly to a positive 53.1, as per the consensus forecast from Econoday.com. While this sounds promising, there’s a catch: contrasting figures for manufacturing from three regional Federal Reserve bank indexes reveal a more troubling scenario.
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Evidence is increasingly suggesting that the upcoming US GDP report for the third quarter will reflect significantly reduced growth compared to the strong 3.7% increase recorded in Q2 (seasonally adjusted annual rate). The key question now is how much the economy will decelerate.
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● Discussions about the Fed’s outlook for the US economy | Reuters
● Atlanta Fed President Lockhart hints at a potential rate hike later this year | CNBC
● Bank of Canada Governor expresses optimism regarding China’s economic outlook | MNI
Wait a moment, St. Louis Fed President cautioned today on CNBC. The Federal Reserve’s decision last week to maintain interest rates unchanged for the first time in nine years was widely interpreted as a sign of weakening in the US economy, suggesting that tighter monetary policy is not likely soon. However, Jim Bullard urges the public to temper their dovish sentiments and to consider the arguments for a more hawkish stance. “There’s a strong case for normalizing interest rates,” he asserts.
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The Federal Reserve’s decision last week to forgo a rate hike has raised concerns about the US economic outlook. However, the delay in tightening monetary policy has stimulated demand for interest-sensitive assets. Notably, US real estate investment trusts (REITs) saw gains of over 3% for the week ending September 18, as reflected by the total return of the Vanguard REIT ETF (VNQ). This marks a standout weekly performance among our usual benchmarks for tracking major asset classes.
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● The Federal Reserve’s decision not to raise rates increases pressure for new stimulus measures from the ECB | Bloomberg
● Asian stock markets decline due to global growth concerns, although China experiences an uptick | RTT
● Oil prices rise amid reports of decreased US drilling activity | Reuters
● The German economy ministry predicts moderate growth for Q3 | MNI
● Charlie Munger: The Complete Investor
By Tren Griffin
Q&A with the author via The Wall Street Journal
WSJ: Mr. Munger offers distinctive insights on investing, especially regarding the dichotomy between index investing and what he describes as “focus investing.” Would you concur with his perspective?
MR. GRIFFIN: Munger asserts that for the “know-nothing investor” with a long-term outlook, a diverse array of low-cost index funds or ETFs is the best choice. He also highlights that even though over 90% of investors fall into the “know-nothing” category, a disproportionate number believe “I’m in the 10%.”
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The discussion is heating up around the possibility that the Federal Reserve may consider negative interest rates. Where did this idea originate? It emerged from an FOMC member who suggested—for the first time in formal public discourse—that the central bank’s policy rate could dip slightly below zero for this year and into 2016, as indicated by two dots in yesterday’s dot plot (see chart below). This concept is gaining traction once again, with the Bank of England’s Andy Haldane advocating for negative rates in the UK.
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Yesterday’s decision by the Federal Reserve to maintain the policy rate unchanged at the zero-to-0.25% target—a rate that has persisted for six years—has sparked speculation that the European Central Bank (ECB) may need to increase its monetary stimulus measures. Investors appear to be responding positively to this expectation; Bloomberg reports a surge in European bond prices following the announcement from Washington. What is driving this optimism? Laurence Mutkin, the global head of Group-of-10 rates strategy at BNP Paribas, argues that the Fed’s dovish stance will influence ECB policy. “We anticipate that in the fourth quarter, [the ECB] will announce an extension of QE,” he explains.
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Recent economic reports suggest a deceleration in the growth trend for the US economy. However, the softer figures overall do not strongly indicate a significantly increased risk of recession. Although the outlook appears a bit dimmer when viewed from the perspective of financial and commodities markets, there remains no clear evidence pointing to an imminent downturn based on the available economic indicators.
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In summary, recent economic indicators highlight a complex landscape for the US economy, with mixed signals regarding growth prospects. While some metrics may appear encouraging, underlying trends suggest caution, as further analysis reveals potential challenges ahead. As we observe ongoing developments, it will be crucial to stay informed and agile in response to these unfolding scenarios.
