Monetary Policy: Navigating the Fed's Rate Cut Cycle

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IG Sees Concerns Federal Reserve's Powell Has Fallen Behind the Curve

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Bloomberg Aug 4 23:46 · 37.3k Views

Tony Sycamore, analyst at IG Australia, shares his take on the plunge in Asian stocks and Federal Reserve policy. He speaks on "Bloomberg: The China Show."

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Transcript

  • 00:00 You know, obviously there's been
  • 00:01 bloodshed everywhere, but you know, when you look at the price action so far, what do you think is really driving this sell off?
  • 00:08 We haven't seen a day of carnage like this really since the COVID sell off back in February, March 2020, just across so many different asset classes.
  • 00:16 And
  • 00:17 I guess if we think about the straw which broke the camel's back, we had the BOJ last week hiking rates.
  • 00:23 We
  • 00:23 obviously had some very weak data coming out of the
  • 00:26 US, the ISM manufacturing and of course the non farm payroll roles.
  • 00:30 And
  • 00:31 you've gone from having a narrative around a soft landing to all of a sudden fears of a hard landing or a recession coupled with potential geopolitical tensions in the Middle East rising, potentially leading to
  • 00:43 a more broader base conflict there.
  • 00:45 And
  • 00:46 as I said, the, the the what was started is probably isolated moves in Japan in dollar, yen, a little bit of profit taking in the NASDAQ after a wonderful move higher starting
  • 00:56 from probably mid-july, that pullback commenced.
  • 00:58 We're now seeing it spread more broadly across all different asset classes.
  • 01:03 I guess in terms of what can stop the bleeding, I do see tonight's ISM services PMI as being crucial because last month we saw that drop from 53.8 to 48.8.
  • 01:15 If we were to see another decline tonight, then you probably have confirmation in terms of what you're seeing in some of the other data there that potentially
  • 01:24 the cool landing narrative has shifted to a, a, a
  • 01:26 harder landing.
  • 01:27 And
  • 01:28 I do when I'm looking at expectations out there for the ISM services PMI, there is an expectation that does push back above 50.
  • 01:34 So potentially, if we can see that rebound back above 50,
  • 01:39 potentially we've seen the worst of it in this session in Asia.
  • 01:41 But a lot is riding on tonight's data in the USI cannot overemphasize that.
  • 01:48 Powell still indicated that he was open to cutting rates in September.
  • 01:51 So
  • 01:52 do you think really that the Fed has missed the window here to execute a soft landing or is it just a little bit overblown, perhaps the market action?
  • 02:00 Yeah, there's certainly concerns that he has fallen behind the curve there.
  • 02:04 I
  • 02:04 probably think now he can still get back ahead of the curve with A50 basis point cut in September if the situation warrants it closer to that time.
  • 02:12 But
  • 02:12 at the moment we have to be mindful that they have put a lot of emphasis on the labour market data.
  • 02:17 We have to be mindful that position was very much well skewed one way in a lot of markets.
  • 02:21 So we can still look back and say this has been a position flush.
  • 02:25 But again
  • 02:26 it depends on the data which comes in over the next month or so and that starts with tonight's ISM.
  • 02:31 We know that the
  • 02:33 ISM does reflect into terms of
  • 02:35 the services sector.
  • 02:36 It is
  • 02:37 partly to do with what's going on with the consumer, with what's going on with households, which makes up over 2/3 of USGDP.
  • 02:44 So
  • 02:44 I am just hoping we don't see a
  • 02:47 that that crack widened tonight because if it does,
  • 02:49 any chance of the, the, the, the, the, I guess the reaction we've seen starting to calm down pretty much what goes out of the window and it does accelerate and all of a sudden A50 basis point optional rate hike looks more like a necessity.