Morning Update

Fears that the world’s largest economy could dip into a recession have grown this week with two major investment banks upwardly revising their forecasts of such a downturn.

For example, JP Morgan is now pointing to a 35% chance of a recession within the year, up some 10 percentage points from their previous expectations.

Meanwhile, Goldman Sachs similarly raised their forecasts by 10 percentage points, and are now predicting that there is a 25% probability of a recession in the next 12 months.

Both predictions follow the Federal Reserve’s decision to maintain rates at their current 5.25% to 5.5% target, which raised fears that restrictive monetary conditions could overly hinder growth across the States. When combined with the subsequent string of PMI and labour market data which missed expectations – in addition to a flurry of corporate earnings which did the same – recessionary fears have raised the surface once more this week.

For instance, when looking at the US labour market a week ago we learnt that the rate of unemployment rose unexpectedly to 4.3%, its highest since October 2021. This came as the nonfarm payrolls print showed 144,000 new being posted over the course of the month of July, missing expectations of 175,000. This came well below the rolling year average of 215,000 and marked the lowest figure in three months.

While recessionary fears have resurfaced into headlines, most economists are still pointing to a soft landing from the US. For example, US economic growth since the start of the pandemic has far exceeded that of economies including the UK, Germany, France and Japan. For example, the US economy grew 8% between Q4 2019 and Q4 2023 against the aforementioned countries whose GDP grew less than 2% over the same time period.

Last month we also saw US output expanded 2.8% an annualised basis over Q2, up from 1.4% in Q1, and above forecasts of 2%.

French unemployment eased over the second quarter of the year, coming in at 7.3% against expectations of 7.5%. This marks the first time since the fourth quarter of 2022 that the rate of unemployment has fallen, while also indicating that French unemployment has eased to its lowest level since Q2 2023.

The fall in the rate of unemployment came as the number of those unemployed fell by 40,000 to 2.3m.

Across the labour force, the activity rate remained stable over the quarter, unchanged from 74.5%, its highest level since 1975.

Following the release of French unemployment data, attention this morning was also on the release of German inflation figures. Here, the benchmark HICP component came in at 2.6%, meeting expectations and coming in line with last month’s figures. At 0900 we will also see the release of Italian inflation where the market is expecting a CPI print of 1.3% on an annualised basis.

At 1330, we will also see the release of Canadian unemployment, where the general market consensus is expecting to see unemployment rise from 6.4% to 6.5%.