Weak may jobs data, and a slow down in manufacturing led to the federal reserve discuss the possibility of lowering interest rates. Investors and Wall Street was Euphoric with the S and P 500 rallying over 5%
Global manufacturers are now in contraction mode for the first time since 2012. That’s according to the most recent reading of the sector’s health, the purchasing manager’s index (PMI), which headed lower for a record 13th straight month in May. The PMI posted 49.8, down from 50.4 a month earlier. As a reminder, anything above 50.0 indicates expansion; anything below, contraction.The latest report was a disappointing showing that will stoke fears the economy is softening as the Trump administration’s trade war with China and potentially Mexico escalates.
The Federal Reserve has signaled that it would consider a rate cut in the event of economic weakness, and May’s data is likely to be an important factor in their decisions.
“This gives us a real sense of deceleration in the U.S. economy,” said Diane Swonk, chief economist at accounting firm Grant Thornton. “We knew this was occurring, but this could be a summer of discontent. It also gives the Fed a green light to cut rates.”
Most analysts expect the economy to slow in the current quarter, after a growth rate of 3.1 percent in the first three months of the year. Both retail sales and factory orders declined in April, a sign that consumers and businesses are growing more cautious.
"For the Fed, today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts," BofA said. The bank maintains that June is "too early" for Powell to move and says the Fed may want to "wait after the G-20 meetings to get greater clarity on the current trade negotiations between China and Mexico before altering their outlook for the economy and the path of policy."
Goldman has yet to adopt rate cuts as their base case (as of this writing, anyway), the bank did acknowledge that the jobs report raises the odds of easing. "The risks of Fed rate cuts have clearly increased, and the outcome of trade negotiations will also be a central consideration," the bank said.
Credit Suisse (which sees a rate cut at the July meeting) drove the point home on Friday morning. "A Fed cut in June is still unlikely, in our view, but this report increases the chance that we see a clear dovish shift at their upcoming meeting, followed by a rate cut on July 31st," the bank said, in a short note.
Nomura's Charlie McElligott: There’s a meaningful chance that even if the Fed were to move forward with a preemptive 'insurance cut' of up to 50bps in the next 1-3 months, the market implied potential for 4 cuts before the end of next year looks like a 'stretch,' as it would potentially require the worst case scenario double-whammy of 1) Tariffs and 2) Recession.
Stock Market Analysis. Stock Market Analysis June 2019. Stock Market News. Stock Market. Stock Market Investing. Stock Market Trading.