Reports follow one another but do not always look alike. Yet they paint the picture that the U.S. economy remains still resilient, in a mid-cycle slowdown, albeit with no recession ahead, supported by consumption, productivity and an accommodating Federal Reserve. These factors maintain a medium-term positive trend, notwithstanding the current consolidation.
As an investor, one of the main risks you face is recession. In such a phase, it is hard to avoid taking losses, in hard cash. Rest assured: GDP growth estimated at around 2.5% to 3.5% for Q4 does not suugest a recession.
Meanwhile, final demand and consumption remain solid. Retail sales are rising at an annualized pace of over 3%, feeding directly into GDP. Consumption is supported by slightly positive real wages, spending by retired baby boomers and a labor market that is slowing, although not deteriorating.
It is important to return to this point because the latest jobs report ultimately prompted profit-taking in equities and a rise in long rates. Yet it is more appropriate to speak of a rebalancing of the market rather than a real deterioration. The rise in unemployment mainly stems from an increase in the participation rate and voluntary reductions in public-sector jobs, while at the same time the private sector continues to create jobs.
Moreover, GDP growth far outpaces employment growth. In other words, the US is seeing significant productivity gains, even as massive AI investments cushion the cyclical slowdown.
Finally, inflationary pressures are easing - as evidenced by the CPI: expected to rise by +3.1% y-o-y, it came in at +2.7%. The gap between the forecast and the print is identical in the version stripped of volatile components. The Fed can therefore cut rates without growth collapsing, while implementing targeted liquidity measures to avoid any financial stress coming out of the shutdown.
The bond market's reaction to inflation figures is fairly clear: the 10-year yield immediately eased, although we will have to wait for a break of 4.08% to be more confident that the rebound in place since last October is over. Equity indices tried to lift their heads, while the dollar did not suffer too much, even though the trend in the EUR/USD has remained positive since the break above 1.1695.
USD/JPY held well on its support at 155/154.28 and has just retested its November highs at 157.90 ahead of the 158.88 recorded in January 2025. No significant change in the USD/CHF, which remains within a horizontal consolidation channel between 0.8130 and 0.7830. The Aussie remains well oriented above 0.6550 with a first target at 0.6710, before 0.6870/0.6940. Finally, the kiwi seems intent on clearing 0.5790/0.5800 to open 0.5900, or even 0.6010.
