Let's get to the big story breakdown.
While US stock futures are higher this morning as investors weigh signs of labor market weakness and look ahead to the likely end of the US government shutdown.
Now late Monday, the Senate approved a spending bill to end the government stoppage, and that measure now heads to the House for a final vote as soon as today before going to Trump's desk for his signature.
Now the The government's reopening is expected to release a flood of delayed economic data, and the Fed does remain split over whether to cut interest rates in December.
At last month's meeting, inflation hawks pushed to hold off on more cuts, highlighting divisions inside of the Fed.
And we also got a new ADP report out yesterday which showed that the private sector lost an average of more than 11,000 jobs.
Week in the 4 weeks through October 20th.
Well joining me this morning is James Knightley, chief international economist at ING.
James, great to have you here.
Thank you so much for joining me.
Great to be here.
Well, hopefully once the US government shutdown ends, we will be getting a key economic data.
So where do you stand based on some of the private data points that you've seen so far?
Yeah, no, that's right.
So hopefully with the shutdown coming to an end, we'll start to see those pipeline reports coming through over the coming days, including the jobs report, the official job support, probably early next week.
So that'd be good.
And it gives perhaps the market a bit more confidence that the Fed would now be in a position to cut rates because there had been a sense from some of the Fed officials that with a lack of official data we don't really know where we're going now.
I think that's probably pushing it a little bit too far because as you say, we've had a lot of private surveys and they haven't been particularly good, particularly the. surveys business has been holding up, but the consumer sentiment survey has been looking very weak, particularly the perceptions of the jobs market, and then, as you say, that was then reinforced yesterday with this ADP report suggesting that we've lost quite a lot of momentum in terms of job creation.
In fact, we're actually losing jobs once again through October.
So for me, we are in a position whereby we're going to get more clarity over the coming weeks what's happening, but so far the news flow hasn't been that great and it still for me leaves the door open to that December rate cut from the Fed.
Yeah, and James, as you mentioned, the Fed Reserve meeting, the final one for 2025 is right around the corner to be exact, about 28 days until that rate announcement, we will be paying close attention to what comes out of the central bank.
But of course when we're talking about rates and the US economy, there are areas that rates can actually address and areas that it cannot.
So what are your concerns right now as we head into your That's right.
So we know that the Fed is cutting rates, and that helps to loosen financial conditions and it's supportive for growth.
But the key story Scott Besant will keep saying as Treasury secretary is that we've got to focus on that 10 year.
The 10 year is so critical for mortgage rates, which remain very elevated, so critical for corporate borrowing costs as well.
So while the Fed is cutting rates right now, they also want to make sure that that 10 year doesn't start to rise more aggressively.
And the clear threat that could rise is the fiscal side, and we're going to get more fiscal data later this week about the position of the United States.
So it's sort of getting a balancing act.
Yes, lower rates are good news, but they also need to keep a lid on that long end of the curve as well.
And as we head into the new year, there will be focus on taxes as well and the implications on the US economy, but when we're looking at the economy as a whole, especially here in the US there are areas such as education or healthcare or insurance that rates wouldn't actually be able to touch.
So, what other tools do you think the Federal Reserve should?
Actually be using right now that's the tricky thing for the Fed, isn't it?
So much of the where the inflation is coming through that it's out of their hands and interest rate policy won't do a great deal to really resolve those issues, I guess the one thing from the Fed's perspective is that the tariffs haven't been coming through as forcibly as they'd feared, and certainly as we'd feared and most banks have been fearing.
So that's a good story.
And if we're still expecting it to materialize but just more slowly.
And that gives more time for disinflationary forces to come in through, so the energy prices you said today, oil prices down to $60 a barrel again.
That's a disinflationary force pulls inflation lower.
Weaker wage growth in a weaker jobs environment also helps to lower the cost pressures in what is largely a service sector economy.
And then of course, thirdly, we've got housing rents.
These are a third of the inflation basket.
These are slowing as well.
So I think the Fed actually is in a relatively comfortable position in that tariffs are not as threatening.
These big dislo forces are coming through as well, but yes, they're keeping in mind a watchful eye on those other factors, but they can't really do a great deal about those and they've just got to hope that they do settle down.
And of course when we're looking at the markets, equity markets are on track for double digit percentage gains so far as we head into your.
And we're also seeing gains in precious metals as well, but we are seeing a disassociation when we're talking about Wall Street versus Main Street.
So for investors out there who are looking for opportunity right now when it comes to the markets and of course the AI play, what are your expectations as we head into your end?
Yeah, when we talk about the US economy as economists, we talk about this bifurcation of this Khad economy whereby the top 20% of households are doing fantastically well, so stocks focused on those high-end consumers continue to do very well.
And of course tech versus non-tech as well.
Tech investment spending is just ballooning, no.
Tech investment spending is actually contracting, so you've got these again real splits in the economy.
So if you're focused on the top 20% of households by income and you're focused on tech, you're probably in a pretty good position right now.
But if you're in non-tech and focus on more budget oriented consumers, things are a little bit more challenging for you.
And finally, before I let you go, we have about 60 seconds here, but based on what we're seeing in rates from central banks across the world, what are you focused on right now and why?
Yeah, I think the US is where the action really is.
In Europe, we're starting to see a sense that actually the ECB, the next move could be higher rather than lower.
They've done a lot of their easing.
Japan is also still expected to raise rates, so we're starting to see a bit more divergence coming through.
And next year if we're in an environment where the Fed is still cutting and the central banks are raising, that could be an environment for dollar weakness.
So that's the key thing that we're thinking for for next year.
OK, James, always a pleasure having you on the show.
Thank you so much for joining me today at the New York Stock Exchange.
Thank you.
