Markets send mixed signals

Katie Martin (0:09)

US markets are a little bit weird at the moment. Rates markets are telling us that investors think the federal Reserve will cut maybe six or seven more times in the next year, which generally means bad stuff is coming our way. But stocks are still flying pretty high, even despite a flare up in geopolitical heat. Meanwhile, the latest jobs data from the US tells us that the economy is smoking hot.

Today on the show, we're asking what is with all the mixed signals and what are we supposed to make of it? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets economist here at FT Towers in rainy London. I'm expecting decent soaking on my way home tonight on my bike. And hooray, Rob Armstrong off of the Unhedged newsletter is back by dope demand. He's been doing some real shoe leather reporting, as we journalists like to say, taking the pulse of the US economy. Rob, did you find a pulse?

Rob Armstrong (1:10)

Shoe leather reporting may flatter me a little bit. What I did is I went to a humongous mall in Pennsylvania and kind of looked around and talked to people and looked in stores and generally thought about things. It was more like I went on a trip to contemplate the US economy rather than actually doing any hardcore reporting.

Katie Martin (1:33)

What's your best anecdote from your time on the road, talking to real America?

Rob Armstrong (1:38)

That is a good question. Well, I'll tell you this. I'll pose a puzzle to you. I went to this huge mall and all the stores in the mall open at about 10 in the morning.

I was just walking up and down this humongous mall. It's like a mile long, there's 450 stores. I didn't see anybody do a transaction until like 1145 So why do they open all the stores at 10? We put that as a puzzle to you. Is it because, well, the employees have to be there to fiddle the stock around anyway or do something. They might as well open the door in case there should be a customer, but nobody goes to the mall at 10 Why do the stores open at 10? You know?

Katie Martin (2:16)

Not every day can be like Black Friday.

Rob Armstrong (2:18)

It's true. Not every day. This was on a random Thursday, but I was quite struck by that. But man, Americans will shop that place by 2 in the afternoon. The place was jumping. People were buying stuff. The American consumer, as judging by the King of Prussia Mall and King of Prussia, Pennsylvania, is just fine. Thanks very much.

Katie Martin (2:37)

Never underestimate the American consumer.

Rob Armstrong (2:39)

Never.

Katie Martin (2:41)

Now then, let's start at kind of the beginning. Is the US overheating? Because thems was some scorching jobs numbers we had on Friday.

Rob Armstrong (2:52)

No. It's not overheating. I mean, the great motto of the Unhedged newsletter, there's two mottos. One motto is calm down. And the second motto is one month is just one month. So we had like three months of very-

Katie Martin (3:07)

Omijom.

Rob Armstrong (3:08)

Omijom. That's how we say it. Omijom. We had three months of pretty middling job numbers. And then we did get a pretty jumping report for September.

But there's a big margin for error in these surveys. And as we've seen in the last six months or so, these numbers hop around. So until you get three strong months-

Katie Martin (3:30)

It's not a big jump around, but this one was hopping though, right? So the US-

Rob Armstrong (3:34)

256,000 jobs or something like that.

Katie Martin (3:38)

I think it was 254, but anyway, that's a lot of jobs. And the unemployment rate came down to like 4.1, just edged a little bit lower.

Rob Armstrong (3:45)

And the jobs were spread around the economy. It was leisure and hospitality.

It was everything. So it was a good report, and the markets really responded. And the funny thing is, before that report, everybody was like, well, there's a secret slowdown in the economy that's coming. It could even be a recession or whatever. There's cracks in the edifice or a metaphor of your choice. And then we get this one report, and it's like, it's overheating. Inflation's coming back. And so it's like we're all over the road in terms of sentiment here.

Katie Martin (4:32)

We are all over the road. And like the thing is, though, it is quite a weird situation where you've got jobs, numbers absolutely blasting through expectations. And it's worth noting that July and August got revised up somewhat as well. Like straight after, the Fed just cut benchmark interest rates by half a percentage point. And it's like something is not right with this picture. But it also in terms of the market reaction you just mentioned, like this is what investors are constantly saying to me, which is that the Fed is data dependent, right? It doesn't really have a plan, it's responding to data points as and when they come in, which means that the market has to respond to data points as and when they come in. Which means we're all just getting like pinged around all over the place on every data release. And it's exhausting, frankly.