The United States reported on Friday (September 5) that non-farm payrolls increased by only 22,000 jobs, while the unemployment rate rose to nearly a four-year high. Fidelity International fund manager Rick Patel believes the US labor market has become fragile and expects the Federal Reserve to cut interest rates, with room for 100 basis points of rate cuts remaining this year, which would benefit fixed income assets.

Patel acknowledged that current US overall inflation remains above the Federal Reserve's target, with both hiring and layoffs at very low levels. However, he noted that the situation is actually quite fragile, where even small changes could cause the labor market to deteriorate. He anticipates the Fed may aggressively cut rates in the short term, with 100 basis points of cutting room remaining this year.

He analyzed that factors contributing to US economic growth slowdown will persist in the coming months, with particular concern about US consumer health. In the next few months, a rare situation will emerge where US consumers will face negative real income growth, meaning average wage growth will fall below average inflation levels. This situation only occurred previously during the 2021 pandemic outbreak and is expected to create downward pressure on private consumption.

Patel considers 5 to 10-year US Treasuries to be the most attractive currently. As market concerns about US fiscal conditions reach high levels, rising long-term bond yields have made their valuations more attractive. However, US corporate bonds are relatively less appealing due to narrow spreads with government bonds, and if economic growth slowdown exceeds expectations, it would be unfavorable to corporate bond fundamentals.

Regarding US implementation of reciprocal tariffs globally, Patel frankly stated that tariffs have already affected certain supply chains and demand slowdown, potentially creating adverse factors for economic growth and employment prospects. If layoffs continue to increase, it would be sufficient to cause labor market deterioration and exacerbate economic downside risks.

Additionally, Patel believes US stock valuations have become quite high, with defensive characteristics potentially not as strong as before. He expects fixed income products could serve as an important diversification tool during stock market corrections.