What US jobs data, UK election mean for global rate cuts

Citi global equity strategist Beata Manthey joins Catalysts to discuss the state of the US economy and how global equities (^FTMC, ^FCHI, ^FTSE, ^SBF120) are reacting to the UK election results.

Nonfarm payrolls exceeded expectations in June, as the US Bureau of Labor Statistics reported 206,000 new jobs added to the labor market against the expected 190,000. “Citi economists have been highlighting for quite some time this underlying weakness in the labor market, so under-the-surface weakness. And this is starting to play out and be visible in the in the coming data, especially today. And what that means is there is a silver lining. And Citi economists’ view is that we are indeed going to get the first cut out of the Fed this coming September,” Manthey explains.

She adds that Citi economists are above consensus in anticipating three interest rate cuts for the year, starting in September. RSM chief economist Joe Brusuelas told Yahoo Finance earlier today that June’s job data could play into encouraging the Federal Reserve to cut rates as early as July.

As the UK Labour Party won the general election in a landslide, Manthey notes that the current state of the party is more business-friendly. She explains that for equities, “it’s really going to play out number one through rate and number two through sterling [the British pound].”

“Our view on the FTSE 100 (^FTSE) or MSCI UK, we are more bullish on other markets than this particular one. However, within the UK, our preferred election trade is FTSE 250 (^FTMC) versus 100, or small and medium-sized stocks versus large-size stocks, so they are more exposed to local economy. They are better positioned to benefit from the rate cuts that are coming through, perhaps as soon as August from [the] Bank of England. They are more exposed in a positive way to potential strength in the pound that we see in the short term.”

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Let’s bring in our next guest for more on the latest jobs numbers.

Biaa man Mani is the city global equity strategist.

Biaa Thanks so much for joining us this morning.

Uh, I wanna get your read in on what we’re seeing more largely here on the trend of economic data that’s coming in.

So city economies have been highlighting for quite some time this underlying weakness in the labour market.

So under the surface weakness, and this is starting to play out and and be visible in the in the coming data, especially today.

Story continues

And what that means is there is a silver lining, and a city economists view is that we are indeed going to get the first cut out of the Fed.

Uh, this coming September.

Uh, how many rate cuts are you?

You expecting, uh, from the Fed this year?

So we are above consensus.

There we have, uh, well, city economists for the US have three cuts starting in September.

So your expectation is that inflation from here will continue to slow in large part because of continued slowing job growth.

Correct.

So inflation is slowing down.

The underlying weakness in the labour market is starting to show off.

Uh, show up and the Fed has a dual mandate, and they are going to act on it with that in mind, as we’re taking a look at the probability for a September cut.

I mean, what what?

As we’re, you know, looking past almost this year.

Because now we’ve gotten from six or seven cuts that we were talking about coming into this year down to one, maybe two.

What is that set up for?

2025.

That’s a good question.

Remains to be seen.

We see continuation of cuts into the next year.

But of course, as you mentioned, the market has been changing its mind, Uh, a lot this year, and it has been quite data dependent.

So, uh, remains to be seen.

We see more cuts coming, Um, coming through in the next year as well.

B, you are a global equity strategist.

Uh, so I would love to go a little bit more global with this conversation.

We gotta get your reaction to the UK election results.

Prime Minister tendered his resignation this morning to King Charles.

What can we expect from a majority Labour Parliament?

So most of all, European equity strategies.

So I can tell you much more in detail about what it means for equities.

So in terms of the election, very widely anticipated outcome what you need to know about it, that it’s a more business friendly, uh, labour party, uh, that we are having right now.

And in terms of what it means for the equity market, it’s really going to play out number one through rates and number two through sterling.

So in terms of growth for the so and our view on on the FTSE 100 or mess, I UK we are not.

We are more bullish on other markets than this particular one.

However, within the UK, our preferred trade election trade is F 250 versus 100 or small and medium sized stocks versus large size stocks, so they are more exposed to local economy.

They have, um, they are better positioned to benefit from the rate cuts that are coming through, perhaps as soon as August from from Bank of England.

They are more exposed in a positive way to potential strength in the pound that we see in the short term and also what is very important is that they have died a lot versus large cuts or FTSE 100 over the past two years.

They are down.

They underperformed 25% since the peak in 2001, uh, underperformed year to date.

And they are actually, uh, showing a superior EPS growth.

Um, double double the one for for F 100 or the larger, larger cups.

So that’s our preferred, uh, trade in the post election ward for for the UK.

For those, uh, US investors concerned about volatility, uh, ahead of the election.

And they don’t want to play Europe because Europe is growing very slowly.

It’s unclear when they when the ECB may come across with another rate cut.

Are there emerging markets that investors that US investors could look to for potential alpha.

So, uh, in terms of our global allocation, we are right now overweight.

The US market, which we have recently, um upgraded to overweight immediately in the aftermath of this snap election, announced, uh, in France, downgraded continental Europe to neutral.

Emerging markets are already neutral, but within emerging markets, uh, those countries that we like the most are, uh, Taiwan, Korea and India.

I appreciate the insight.

Piara Mane, uh, city global equity strategist.

Good to see you.

Have a good weekend.

Likewise,