The last few weeks has seen a growing chasm developing between the US government, the Fed and to a certain extent Donald Trump. Each of these bodies, despite the fact the US government is led by Donald Trump, seems to have had its own agenda which has caused panic and concern in markets. However, today we saw relief with better-than-expected jobs data, a surprisingly upbeat review from the White House and a more patient approach to interest rate rises from the Fed.
No recession in sight
Leading White House economist Larry Kudlow, while acknowledging recent gloomy forecasts, suggested that fears of a recession were exaggerated. His exact words were:-
“There’s no recession in sight. I know this has been a gloomy period and I know people are concerned about the stock market.”
As if by chance, this statement was supported by today’s non-farm payroll data which showed the creation of 312,000 new jobs in the US last month against expectations of 176,000. This is the largest increase in payroll numbers since February 2018 and does not suggest there is a recession on the horizon. However, that does not mean to say economists, politicians and the Fed should take their eyes off the ball!
Softening approach from the Fed
At the same time as US non-farm payroll data hit the markets the Fed came out with a softening approach to future interest rate rises. Suggesting the bank will be “patient” when it comes to raising interest rates in the future; markets took this as a nudge and a wink in favour of delayed interest rate rises. There had been strong expectations of at least two interest-rate rises in 2019 which had spooked investors and stock markets.
On the surface, it does look as though Donald Trump’s hard ball strategy is starting to yield results when it comes to placing pressure on the Fed. However, let’s not kid ourselves, the relationship between Donald Trump and the Fed will always be volatile and fragile. This is a president who likes to lead from the front, a Fed which takes a long-term approach to short-term decisions thereby putting themselves at loggerheads.
Will the stock market rally stick?
Markets have rallied strongly on the back of non-farm payroll data and comments from the Federal Reserve. Even though investors are breathing a sigh of relief is the worst really over?
Just yesterday we saw a profits warning from Apple amid concerns about trade with China, which had an impact on not only the NASDAQ but also general markets. While the likes of Apple have been bellwethers of the US economy in years gone by there may be company specific issues at least partly in play. Investors have for some time now been concerned about the ever increasing cost of new iPhones and other products from the Apple stable. Consumers seem to be looking for better value, better technology and, surprisingly, even the most loyal of customers are now casting a sideways glance at competitors.
There is an argument to suggest that the Apple profits warning is at least partially due to company specific issues. However, with the US and Chinese governments unable to agree trade tariffs let us not dismiss the impact this could have on US economic activity.