US economic signs are strong, worries about slowing economy: Here’s what experts think

The US Commerce Department announced on the 15th that retail sales for July (seasonally adjusted) rose 1.0% from the previous month. This was higher than economists had expected for a 0.3% increase, easing fears of an economic downturn. We asked market participants to comment on the outlook, including other US economic indicators. Photo taken in December 2023 (2024 Reuters / Eduardo Munoz)

TOKYO (Reuters) – The US Commerce Department announced on the 15th that retail sales for July (seasonally adjusted) were up 1.0% from the previous month. This was higher than economists had expected for a 0.3% increase, easing fears of an economic downturn. In addition, the US Department of Labor announced on the same day that the number of new unemployment insurance claims (seasonally adjusted) for the week to August 10 was 227,000, down 7,000 from the week previously, compared to economists’ forecasts of 235,000 for the second consecutive week of decline.

We asked market participants for their views.

◎ Concerns about an economic recession too easy, and expectations for a BOJ interest rate hike will gradually return

Concerns about a US economic recession have been raised many times. Against the background of the inversion of the US yield curve starting in 2022 and the recent increase in the unemployment rate, past empirical rules such as the “SARM rule” have suggested the possibility of an economic downturn increasing. However, concerns about an economic downturn will not disappear completely. The coming months will be spent closely monitoring US economic indicators.

Expectations for further interest rate hikes by the Bank of Japan, which had been declining due to concerns about the US economic downturn, are likely to return gradually. We expect a move towards today’s release, which is likely to put pressure on interest rates, particularly in the medium and long term. However, I think it will take some time to create it as a movement.

Although the US economy is slowing, it is still resilient, and if the US Federal Reserve continues to cut interest rates at a moderate pace, there is little room for US interest rates to fall. If long-term interest rates in the US settle down to around 4%, the yen continues to weaken in the foreign exchange market, and the Bank of Japan is sending a hawkish message that it is looking forward to a hike rates, at least one more. The yield on 10-year bonds (long-term interest rate) is expected to rise to the 1% range.

◎ The near-term resistance level is around 150 yen to the dollar.

US economic indicators were generally better than expected. July retail sales accelerated on Amazon’s Prime Day, and core retail sales, which GDP uses to calculate consumer spending, also came in well above expectations. The number of new jobless claims for the week ending on the 10th and the Empire State Manufacturing Index for August were also better than expected.

As participants’ risk sentiment improved, demand for the yen as a safe-haven currency declined, and the dollar/yen pair rose to its highest level in two weeks. Under the basic scenario that a US economic recession is avoided, if market risk sentiment subsides and conditions change, bearish pressure on the yen is possible again, but in the short term the yen is expected to rise to 150 yen. ., the highest price front line will be around 152 yen for a short time.

◎ A soft landing is expected back; the Nikkei average has room to rise to 38,000 yen

Strong consumption and strong earnings have been confirmed, and fears of an economic downturn have disappeared for the time being. In addition, inflation is stabilizing at a good pace, raising expectations for a soft landing. The weakening of the yen, as excessive expectations for interest rate cuts that predict an economic downturn have subsided, is also a boon for Japanese stocks.

The Nikkei average has room to rise to around 38,000 yen, a psychological milestone, in the short term. However, the market is not convinced of a soft landing. After a round of buying, we think it will be difficult to run the price higher. As the stock has gained momentum in a short period of time after last week’s drop, it is likely that a profit will be made at the top.

There is a sense of caution that the soft situation will collapse, and attention continues to focus on the US economy and monetary policy. In the short term, it is easy to deal with data such as business sentiment, and towards the end of the month, the focus will be on the “Jackson Hole Meeting”, which is expected to provide clues about the authorities’ policy. stand, and the US PCE deflator.

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