Geoff Dennis sees two Fed rate cuts as labour market softens
Remove Ads
Tired of too many ads?
Remove Ads
"The markets have got used to these deadlines being pushed. But were these tariff levels to be actually imposed and presumably a lot more countries may well find that they join this list because this list now is, it came out in two slugs if you like," says Geoff Dennis , Independent EM Commentator.First of all, we do not know if he would not back away again like he has done before. The tariffs are apparently going to be launched on August the 1st. So, we will see if he backs away again. But the important thing here is the markets are not paying as much attention to this as they did before.So, in other words, when we had the so-called Liberation Day in early April, markets in the US especially completely fell apart. Everything went down. The dollar went down, bonds went down, and equities went down. Whereas everybody is a bit calmer now. And the reason people are calmer is first of all they do not know if he is going to carry through his threats to impose these tariffs and also very importantly there is a little bit more reassurance that the inflation impact of these tariffs within the US may be less than people had previously thought. So, we have got to watch it. There is a global trade war going on, but we are not going to see a return to the extremely volatile negative trading in the US and therefore around the world that we saw in the early part of April.I think the latter. The markets have definitely. The markets have got used to these deadlines being pushed. But were these tariff levels to be actually imposed and presumably a lot more countries may well find that they join this list because this list now is, it came out in two slugs if you like.If these tariffs were imposed, this would eventually cause the markets to be quite volatile for a period of time. They are bad news. They are not good for the global economy. They are not good for the US.They are not good for all the countries that are being tariffed. It is just we just do not know whether these tariffs are actually be imposed. But this is still absurdly absurd policy, I should say.And it is also worth pointing out that the number of deals that Trump has made on trade, I suppose you could say three, the UK, China, and Vietnam. And perhaps India is not far away and that is why India may get some protection unless I have missed it.I do not think India has been given another tariff announcement if you like in the last week or so. But if he carries these levels through, yes, we will go back to volatile markets just maybe not quite as volatile as they were in April because at the end of the day what investors want to know is what will be the impact on the US economy , what will be the impact on US inflation , what will be the impact on the US trade deficit, and of course, through all of those, what will be the impact on the US dollar?I think we are going to get two rate cuts, I am in that camp. I do not think we are going to get a rate cut in July. We needed a softer employment report at the beginning of the month to get the rate cut in July, but we will get one in September and one in the fourth quarter because what is happening underneath everything that is going on is the labour market is beginning to soften. It is not softening dramatically, but it is also becoming a little bit, what should we say, fixed in place. There are not many people moving. There are not many people being taking new jobs. There are not many people being laid off. There is just not a lot of new job opportunities. Sentiment towards the labour market is also deteriorated and that is going to be powerful support for a couple of rate cuts.And also, as I have said earlier, if in the end the inflation impact, which frankly we have not really seen yet from the tariffs and just the general inflation story, is perhaps a little bit less fearsome than we all feared it would be a few months ago and to be fair, the Fed feared it would be a few months ago, I think that will open the way for interest rates to be cut.Chair Powell will not cut rates because Trump tells him to. Chair Powell will cut rates because they think the economy is under a little bit of pressure against a background where the inflation story is still reasonably under control.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Economic Times
6 minutes ago
- Economic Times
Market may inch upward gradually after digesting weak Q1 results, global noise: Neeraj Dewan
"These are the two or three key factors dragging the market. However, on the domestic front, the macro setup looks decent—monsoons have been good so far, interest rates remain low, and liquidity is improving. These factors should bode well for the second half of the year. The third and fourth quarters could see better performance," says Neeraj Dewan, Market Expert. ADVERTISEMENT First, your take on the markets—especially the earnings season. The IT sector hasn't surprised positively, and we've seen the market reaction. Within the banking pack, numbers from Axis Bank and Kotak Mahindra Bank haven't been very encouraging either. What's your take on the current market setup? Also, which sectors do you believe can still perform well? Neeraj Dewan: Yes, so far, the earnings have been quite mixed. As you mentioned, there has been disappointment in IT and banking numbers. Even some infrastructure companies haven't reported very encouraging results. June was expected to be a weak quarter, but even with those low expectations, the numbers have underdelivered, and that's something the market is reacting to. Secondly, the delay in the tariff settlement with the US is also weighing on market sentiment. I believe this will get resolved sooner or later. Another concern is the noise around Russian oil—if the US, possibly under Trump, decides to impose fresh sanctions, that could impact us. We've been benefiting from discounted Russian oil, so any disruption there would be a concern. These are the two or three key factors dragging the market. However, on the domestic front, the macro setup looks decent—monsoons have been good so far, interest rates remain low, and liquidity is improving. These factors should bode well for the second half of the year. The third and fourth quarters could see better after the ongoing market correction, I expect some constructive movement. The market should gradually move higher, now that results are in and we have clarity on interest rates, liquidity, and management commentary on order flows and execution. For instance, L&T's results today will be important to see if execution has picked up and what kind of order inflows they're reporting. ADVERTISEMENT Based on all this, we can build a constructive investment pitch for the rest of the year. Banking is one area I believe still has potential. While Kotak and Axis showed some stress pockets, there were also some positives—like Kotak suggesting MFI stress may have peaked. Bank credit should pick up, and once it does, the banking space should benefit. Valuations are still very attractive, especially for PSU NBFCs have also done well this quarter and could continue to perform. The infrastructure and capital goods sectors are also looking promising. As for IT, while the numbers weren't great, they weren't disastrous either. So the downside may now be limited, but it's still difficult to justify fresh buying at this point. It's better to wait and watch for now. ADVERTISEMENT How do you read the banking earnings? There seems to be a clear distinction—even among the large private banks—in terms of who's facing MFI pressure and who's not. For instance, Kotak's MFI book is small, but their commentary was quite cautious. IndusInd Bank had a muted quarter as well. It seems only ICICI Bank and HDFC Bank have managed to weather the storm. Neeraj Dewan: Yes, you're right. As you said, Kotak and Axis Bank numbers weren't great. But ICICI Bank did very well, and HDFC Bank also posted a reasonably strong set. PSU banks, in particular, are trading at very attractive valuations, and their books are was concern this quarter around NIM pressure and MFI stress, and these issues were visible in the reported numbers. But going forward, I believe MFI-related stress may subside as liquidity in the system improves. If we enter the festive season with a good monsoon and favorable economic conditions, that could ease some of the current concerns. ADVERTISEMENT As for NIM pressure—this is a common occurrence when interest rate cycles reverse—but as credit demand picks up, this should also ease. So while this quarter's results were mixed, I remain positive on the banking space looking ahead. The big question is—do you buy the recent declines in stocks like Axis and Kotak, or in midcap banks generally, or do you stick with the sector leaders? Neeraj Dewan: For now, it's better to stick with the leaders. I'm a bit cautious on Axis Bank given its recent results and concerns around asset quality. I would prefer to watch a few more quarters before taking a call there. ADVERTISEMENT Kotak Bank, despite disappointing numbers, may be the better of the two. If you see a meaningful decline in Kotak Bank, it could be considered, especially given their strong track record—even during the RBI embargo period, they managed well and bounced back strongly. But otherwise, I'd recommend sticking with leaders like ICICI Bank, which has posted a strong set of numbers. I also continue to like PSU banks due to the comfort in their valuations. If credit demand improves, they stand to benefit meaningfully because of the levels at which they're currently trading. (You can now subscribe to our ETMarkets WhatsApp channel)
Indian Express
6 minutes ago
- Indian Express
Sanctions, exemptions and assurances: A cautionary note on India's trade deal strategy
Casinos and betting companies around the world might as well start offering odds on US tariff rates across goods for different countries and for how long the rates will stick. If one were lulled into complacency about understanding the current state of affairs, the Trump administration is sure to throw a few wildcards into the mix to keep everyone on their toes – and this includes analysts as well as trade negotiators. A few other countries, including Europe, have agreed on a trade deal with the US, and analysing its structure and form can give a strong indication of how the Indian deal might play out. Finally, a free trade agreement with the UK that was recently signed and one with Australia that was signed a few months ago give India a minor edge in the proceedings. NATO Secretary General Mark Rutte recently threatened India, along with China, Brazil and others with 100 per cent secondary sanctions if they continue doing business with Russia, including buying Russian oil. Simultaneously, US Senator Lindsey Graham is pushing for the Sanctioning Russia Act of 2025, a bipartisan legislative proposal. The bill, backed by Trump and 170 other lawmakers, threatens an unprecedented 500 per cent tariff on all goods exported to the US by countries that buy Russian oil, gas, petrochemicals or uranium. This is part of an overall strategy to choke the Kremlin's war bank and economic lifelines. Trump has warned that if Russia does not stop its military offensive within 50 days, nations trading with Russia will receive trade penalties. India imports 90 per cent of its crude oil needs, of which 35-40 per cent comes from Russia. Recall that in 2020, the share of Russia in India's crude oil imports was less than 1 per cent. The response by the Indian administration has been mixed. India's foreign secretary hit back at NATO's double standards for both buying Russian gas and for buying refined oil from India, which uses Russian crude as inputs. He has also indicated that India might not readily fall in line, as securing India's energy needs is the top priority for this government. Elsewhere, there's a tacit acknowledgement of the cost-benefit analysis. India's Petroleum Minister Hardeep Singh Puri has implicitly acknowledged that India is prepared to 'deal with these sanctions' when they are passed. What helps is that India now has diversified its import sources to 40 countries, as opposed to 27 in the past, which means that India can reduce its imports from Russia, should the sanctions be passed. While diversifying imports to other countries can turn out to be slightly more expensive, a 500 per cent (or even 100 per cent) tariff rate would kill India's competitiveness with the only major trading partner with which India has a trade surplus. India will have to assess the probability of Trump keeping his word on the secondary tariffs. The oil spot markets called his bluff, as the price for Brent crude barely moved from $69 per barrel. If the secondary sanctions stick and Russian oil (which accounts for 10 per cent of the total global oil supply) is shut out of the global markets, the price could shoot up to $120 per barrel. This would derail Trump's domestic low-energy prices agenda. Moreover, if secondary tariffs on Chinese (mainly) and Indian goods stick, it would result in a significant increase in prices of imported goods and cause runaway inflation in the US. Will the acronym TACO (Trump Always Chickens Out) be validated again? Along with the threat of secondary tariffs, Trump has also separately imposed tariffs on auto and auto parts. He is also threatening tariffs on pharmaceutical imports and a 10 per cent additional tariff on all products from BRICS countries for attempting to 'destroy' the US Dollar. These additional tariffs would make the Indian side wary of signing a deal with the US, given that it may be superseded at any time by such ad hoc measures. A trade deal would mean very little if there's a new threat of tariffs every other day. To mitigate this, the Indian side would want explicit assurances that no new tariffs will be imposed once a Bilateral Trade Agreement is finalised. India should now insist on the agreement including renegotiation clauses, or compensation from its trading partner in case of a tariff increase. It could even insist on a clawback clause, which allows India to withdraw benefits if the US reneges on the deal. Though it would be rather foolhardy to speculate, it can be instructive to look at some of the other trade deals that the US has recently signed to get an idea of what may lie in store for India. Though some of these details are yet to be publicly confirmed, what we know so far is that trade deals with the UK, Vietnam, Indonesia, the Philippines, Japan and the EU have been finalised. The big takeaway is that a 10 per cent tariff rate is the new zero or the base rate. In addition, each country faces different additional tariffs. The UK pays no extra charges, while Vietnam faces an additional 10 per cent (bringing their total to 20 per cent, down from the originally threatened 46 per cent). Indonesia and the Philippines each pay an additional 9 per cent, resulting in total rates of 19 per cent (compared to threatened rates of 32 per cent and 20 per cent, respectively). Japan and the EU receive the most favourable treatment with only an additional 5 per cent, for a total rate of 15 per cent. In exchange for these negotiated rates, most of these countries have eliminated all tariffs on US products and opened their markets to American companies. Note that sectoral tariffs are exempted from the reciprocal tariffs. Thus, auto and auto parts tariffs of 25 per cent will apply on top of the base 10 per cent, but these countries have negotiated on some of these sectoral tariffs. Japan was able to reduce auto tariffs to 15 per cent, reduced from the threatened 25 per cent, and the UK got it reduced to 10 per cent. India should pay attention to this and negotiate on pharma and auto products to get exemptions. The writer is an Economics Professor at the Takshashila Institution, an independent and non-partisan think tank and school of public policy
&w=3840&q=100)
Business Standard
6 minutes ago
- Business Standard
US DOJ files misconduct complaint against judge handling deportation case
The Justice Department on Monday filed a misconduct complaint against the federal judge who has clashed with President Donald Trump 's administration over deportations to a notorious prison in El Salvador. Escalating the administration's conflict with US District Judge James E Boasberg, Attorney General Pam Bondi said on social media that she directed the filing of the complaint against Boasberg for making improper public comments about President Trump and his administration. The complaint stems from remarks Boasberg allegedly made in March to Chief Justice John Roberts and other federal judges saying the administration would trigger a constitutional crisis by disregarding federal court rulings, according to a copy of the complaint obtained by The Associated Press. The comments have undermined the integrity and impartiality of the judiciary, the complaint says, adding that the administration has always complied with all court orders. Boasberg is among several judges who have questioned whether the administration has complied with their orders. The meeting took place days before Boasberg issued an order blocking deportation flights that Trump was carrying out by invoking wartime authorities from an 18th century law. The judge's verbal order to turn around planes that were on the way to El Salvador was ignored. Boasberg has since found probable cause that the administration committed contempt of court. The comments were supposedly made during a meeting of the Judicial Conference, the federal judiciary's governing body. The remarks were first reported by the conservative website The Federalist, which said it obtained a memo summarizing the meeting. Boasberg, the chief judge in the district court in the nation's capital, is a member of the Judicial Conference. Its meetings are not public. The complaint calls for an investigation, the reassignment of the deportations case to another judge while the inquiry is ongoing and sanctions, including the possible recommendation of impeachment, if the investigation substantiates the allegations. Trump himself already has called for Boasberg's impeachment, which in turn prompted a rare response from Roberts rejecting the call. The complaint was filed with Judge Sri Srinivasan, chief judge of the US Court of Appeals for the District of Columbia Circuit. More than 250 Venezuelans who were deported to a Salvadoran mega-prison known as the Terrorism Confinement Center, or CECOT, were sent home to Venezuela earlier this month in a deal that also free 10 US citizens and permanent residents who had been held by Venezuela. But the lawsuit over the deportations and the administration's response to Boasberg's order remains in his court.
