¦The manufacturing purchasing managers’ index of the Institute for Supply Management (ISM) has continued its decline in September, reaching 47.8%. The non-manufacturing ISM has registered a big drop of 3.8 percentage points and is now at 52.6% — a very low print for a non-recessionary period ¦Against this background, bond yields have declined significantly reflecting increasing worries about recession risk, rising expectations about additional Fed easing and a greater flight to safe havens ¦The labour market data for September however brought some relief. Nevertheless, we expect the Fed to continue to cut rates.
How many pieces of bad news does it take to become convinced that the cyclical environment has definitely changed? Difficult question to answer but what is clear is that a big growth scare has developed this week. Typically, it manifests itself through a drop in US treasury yields, as investors — faced with poor economic data — flee to safety. This pretty well summarises this week’s experience.
