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September 6, 2024 BONUS >> What the latest economic indicators reveal
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⚡ S&P Global US Manufacturing PMI (August): 47.9
A PMI below 50 indicates contraction in the manufacturing sector. In 2015, when the manufacturing PMI fell below 50 for several months, the S&P 500 posted a correction of around 12%.
This signals that equity markets tend to react negatively to persistent weakness in manufacturing.
In bond markets, such periods often saw a flight to quality, with US Treasury yields falling as investors sought safety, similar to what happened in 2011 when PMI dropped during the European debt crisis.
🧠 ISM Manufacturing PMI (August): 47.2
A weak ISM Manufacturing PMI has typically foreshadowed sluggish GDP growth.
In 2008, when the PMI fell below 45, the Dow Jones Industrial Average saw a steep decline of over 30% during the global financial crisis.
High-yield bonds tend to underperform during such times, as corporate earnings face downward pressure, causing spreads to widen.
💎 BoC Interest Rate Decision: 4.25%
When the Bank of Canada has paused interest rate hikes during times of economic uncertainty, such as in 2015, the Canadian dollar (CAD) depreciated against the US dollar by nearly 10% over the following six months.
During those periods, Canadian bond yields also tended to fall, with the 5-year government bond yield dropping by about 50 basis points within a few months after the pause.
💥 ADP Nonfarm Employment Change (August): 99K
A significant drop in employment growth has often foreshadowed economic slowdowns.
In 2016, when ADP employment numbers consistently missed expectations, the S&P 500 posted flat performance for the year, while defensive sectors like utilities and consumer staples outperformed.
Similarly, during past employment slowdowns, gold prices often surged—during the 2001 recession, gold gained nearly 20% as investors sought safe-haven assets.
💡 Average Hourly Earnings (MoM) (August): 0.7%
Wage inflation has historically been a key factor for central banks.
In 1979-1980, during the inflationary period driven by rising wages, the Federal Reserve significantly hiked interest rates.
During that time, long-term US Treasury yields soared to nearly 15%, while equity markets struggled with stagflation.
More recently, in 2018, when wages accelerated, the USD strengthened as the Fed tightened policy, but equity markets experienced increased volatility due to higher interest rates and inflation concerns.
🔥 Unemployment Rate (August): 4.2%
An increase in unemployment has had mixed effects on markets.
During the 2000-2001 dot-com bubble burst, unemployment rose steadily, and the S&P 500 dropped by nearly 30%. In contrast, in 2009, following the global financial crisis, as unemployment remained high but showed signs of plateauing, equities began a strong recovery.
However, higher unemployment can often signal a more accommodative monetary policy from central banks, leading to falling bond yields.
In the 2011 debt crisis, as the unemployment rate hovered around 9%, the 10-year Treasury yield declined sharply by nearly 100 basis points over several months.
Best regards,
Alessandro
Founder of Macro Mornings
Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.