On September 10, as recent data indicated a cooling US labor market, "recession fears" swept Wall Street once again. However, according to Morgan Stanley, the slowdown in US job growth actually signals economic bottoming rather than deterioration into recession.
The team led by Morgan Stanley's Chief Investment Officer and Chief US Equity Strategist Mike Wilson noted that the latest employment report confirms the US economy is in the early stages of a "rolling recovery."
In their latest report, Morgan Stanley strategists offered an optimistic interpretation of the August nonfarm payrolls report, stating that employment data is inherently lagging and the US economy has actually entered a recovery phase. The firm's strategists expect that June marked the cyclical low point, with nonfarm payrolls unlikely to deteriorate sharply.
"We believe that unless the economy faces another shock, there will be no rapid/sharp rise in unemployment, nor will nonfarm employment experience significant negative growth," they wrote.
"Friday's employment data and improved revisions suggest that June was the low point for nonfarm employment in this cycle. However, other indicators we track show that employment weakness was most evident around 'Liberation Day.' Therefore, in our view, this represents the trough of the rolling recession," the report stated.
Additionally, on Monday Eastern Time, Goldman Sachs Chief Economist Hatzius indicated that US economic growth has approached stagnation and will require several rate cuts to regain growth momentum.
He expects the US economy may not see improvement until 2026, meaning Americans will need to endure challenging conditions for some time. "I think we're close to stagnation," Hatzius said. "It's difficult to determine exactly how long it will take to truly reach stagnation."
Hatzius believes that after multiple Fed rate cuts, the US economy may not see improvement until 2026. Prior to that, US economic growth will remain "relatively slow." Against the backdrop of weak US economic conditions, Hatzius anticipates the Fed will implement a series of rate cuts. "I think they will cut rates three times in September, October, and December, with possibly several more cuts next year."
Key data to watch today includes China's August CPI annual rate, US August PPI annual rate, and the final reading of US July wholesale inventories monthly rate.
**US Dollar Index**
The US Dollar Index traded higher yesterday with a slight daily gain, currently trading around 97.90. Besides short covering providing some support, market caution ahead of US inflation data also supported the currency. However, the impact of Friday's significantly disappointing nonfarm payrolls report continued to ferment, with heightened Fed rate cut expectations limiting the rebound scope. Today, watch for resistance near 98.50, with downside support around 97.50.
**EUR/USD**
The Euro traded lower yesterday with a slight daily decline, currently trading around 1.1700. Besides profit-taking pressuring the currency, the USD Index's rebound also weighed on the Euro. However, heightened Fed rate cut expectations and anticipations of the ECB pausing accommodative policies limited the downside. Today, watch for resistance near 1.1800, with downside support around 1.1600.
**GBP/USD**
The Pound traded lower yesterday with a slight daily decline, currently trading around 1.3520. Besides profit-taking and technical selling pressure near the 1.3600 level, the USD Index's rebound also weighed on the currency. However, heightened Fed rate cut expectations and cooling investor expectations for BoE rate cuts limited the downside. Today, watch for resistance near 1.3600, with downside support around 1.3450.