Nick: Fed will cut rates, though not for reasons markets are expecting

ECB Cuts yesterday markets are lower some of that may be the read on GDP uh remains to be seen but there's a big question here in the United States does that ECB cut does that push the FED to cut sooner or later what's your opinion I agree with the characterization of the aish cut for the ECB if you're going to cut interest rates and it's widely expected you need to give some kind of guidance as to when and why you might cut rates further and if you don't you're going to end up disappointing markets like the ECB did yesterday for the FED if the ecb's hawkish cut uh means that the euro got stronger that potentially means the dollar gets weaker which is going to add to inflation and adds to some of the fed's headaches uh you do tend to see synchronicity though in the central bank's actions here around the world you have the Bank of Canada cut you have the Swiss National Bank cut or the Swedish national bank cut you potentially going to have the bank of England cut so they tend to happen together this cycle hasn't been quite as synchronous as other ones but the FED is going to be we think cutting later this year not necessarily for the reasons the markets are expecting which is sort of benign disinflation but because we are going to start to see if not this morning then in the next couple of months more weakness in the labor market it's going to force their hand and bring them to the table with interest rate Cuts you know a good point I think the bank of England's almost certain based on what Andrew Bailey had to say uh during their last meeting I want to turn back to the us though you're having some doubts about the US achieving a soft Landing the thing that you're looking at is employment I mean straighten me out because I don't quite get it um sequentially we're expected to see an increase in jobs what are you seeing that economists in the market aren't saying when it comes to the jobs Market sure so the payrolls have been very strong really in the last year or two years but you have seen sort of this this gradual decline in job creation which is going to be natural the later you get into a cycle it's the leading indicators for employment that really concern us when we look at leading indicators for the unemployment rate because again the unemployment rate is not a leading indicator once the unemployment rate is rising it tends to mean it's already a little bit too late for the FED to step in and help the market or help the economy with interest rate Cuts uh the unemployment rate is higher by about half a percent than it was a year ago butow is higher as well but wage growth is higher so generally if the if the labor Market's softening why would wage growth be so strong I believe it's about 4% year-over-year why are we seeing wage growth if the labor Market's actually soft so wage growth is also decelerating so the two things that we look at together are the quits rates so how often are people leaving their jobs voluntarily and that tends to um to to lead wage growth by about a year and the quits rate's been coming down pretty rapidly over the last year as the market sort of normalizes and even quits now are a little bit less common than they were before the pandemic we think that's going to continue to bring wage growth down that's a sign that the labor market is not as tight despite the headline payroll growth the labor market is not as tight as it was again a year ago but small things like small business hiring how many small businesses saying are saying they're going to be hiring in the next 3 to six months that's really started to come down pretty significantly as well and that has been a historically a very reliable indicator for a rising unemployment rate so that's what we're concerned about over the summer is I want to switch gears to the markets Brian before we go way to the summer I want to switch to the markets right now cuz now you're looking at the maret markets currently right now so quarter to date I'm looking at the Russell down 32% Industrials down 3 and a quar materials not far behind them that's something that you're flagging that's saying uh actually raising some questions in your mind about us reaching that so-called soft Landing but I do have to ask you in the Market at least isn't that just a shift of investors going towards the AI trade and leaning even more into it I mean the money can't go everywhere at the same time sure so you certainly have Tech sort of out there on its own leading in large part because of the AI trade but what we also see sort of the internals of the rest of the market are you know again if this was going to be a soft Landing if we were sort of at the early stages of sort of a new cycle we should be seeing those cyclical sectors performing better instead we're seeing sectors like utilities REITs Consumer Staples those are very interest rate sensitive sectors in some respect they're Bond substitutes they like lower interest rates and they don't mind slower economic growth those are the sectors that again outside of tech have been in the lead in this latest kind of rally that we've been having so we call that a risk-off rally you tend to see that at a time when the fed is holding interest rates high and waiting to see when it's appropriate to cut by the time you get to those cuts the market is typically started to roll over as the bad economic news is coming in

Channel: CNBC Television

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Id: Fx_sROBk6wU

Length: 4min 10sec (250 seconds)

Published: Fri Jun 07 2024