Head of Macro Analysis
Summary: The latest ADP, which rose only 27k, was the first very worrying signal regarding the US labour market this year. The payrolls for May that have just been released tend to confirm that the jobs market is indeed facing negative pressure.
Usually, when we are approaching the end of the cycle, we should not focus so much on the unemployment data as they are both lagging and contrarian indicators. However, this big miss will obviously reinforce the market view in favor of rate cuts (odds are above 70% for July Federal Open Market Committee meeting).
The Fed is in a corner, as economic activity is showing signs of weakness and it is pushed to move towards “insurance cut”. Nonetheless, such a move will be interpreted by market participants as panic cut, meaning they will expect more cuts to come as the outlook is getting gloomier.
We are heading towards a global policy reversal, with high expectations that the Fed will cut rates by 50 basis points by October.