US market in a Goldilocks scenario; 3 rate cuts are expected: Anurag Singh
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, Managing Partner,, says US markets are exhibiting resilience amid anticipation for the US-Russia summit, buoyed by confidence in the current administration's tariff policies. Singh highlights that tariffs, now significantly higher, haven't fueled inflation. Solid earnings, potential rate cuts, paint a 'Goldilocks scenario' for the US, with markets potentially reaching new highs. Good rate cuts are expected this year. Goldman Sachs predicts three rate cuts. A 50 basis points cut is possible due to a weaker labour market.There is a lot to unpack there. Let us focus on the US markets first. The US markets have really climbed the wall of worry on tariffs, now that broadly all the deals are behind us and the markets have gained confidence on the perspective of the current administration on tariffs, and eventually where we are ending up. Before this government took over, tariffs were around 3% of all the imports in the US, now they will end up at around 17-18%, which means some additional $350- 400 billion will go to the US government treasury.One idea also is gaining ground is that the importers will be able to pass at least half of it to the suppliers. So that is some good news. It has not reflected in the inflation numbers for the past four months. So far, there was talk about how tariffs will result in inflation. Now, there are other theories coming up, but that is also good news.Finally, we are expecting good rate cuts this year. Goldman's view is pretty apt. Three rate cuts this year. It might be 50 basis points this time because the labour market turned out to be much weaker especially when the numbers were revised. In May and June, we barely added any jobs. And I doubt whether the 75,000 number for July is correct and that also might be revised later. So, overall earnings are solid; except for some fast food chains, earnings are broadly in line. A rate cut scenario is playing. The job market is still holding good.So, overall, it is pretty much a Goldilocks scenario for the US market. There's nothing wrong here. Do not forget tariff is one element of the government, low taxes, R&D write offs in the first year and lower regulation which is broadly deregulation across sectors. Those are the big impetus which broadly served very well for the market for at least two-three years until this administration is there, unless something unforeseen hits, so that is the picture.US markets look solid, good and will probably touch 6,600 or 6,800 or even maybe 7,000 by year end. In terms of the Russia discussion, I do not think it impacts the US market as much. It is more a solution for Europe and NATO going forward. I doubt something very consequential will come out. I do not understand geopolitics too much, but I am sure Putin would need some guarantees on NATO expansion, that Ukraine will not be included in NATO in the coming future which of course all the NATO members will have to agree to. The European Union members would not agree to that, so there is a stalemate there. But that is where we stand.Finally, coming to metals and oil, we are in a regime for the next three-four years where oil will continue to be within the affordable range, which works good for India as well as all the emerging markets. Broadly between $65 and $85 is a good range, because the president is pro-drilling. I do not think there is a scarcity of oil unless a war comes up. On metals, I do not have a view. It all depends on how China behaves. That will decide the price of metal.The CPI number is stuck for the past 12 to 13 months within a 2.7 range and so that is the stickiness of the inflation. The change is that services, especially housing. is now pretty much at 0.2% month-on-month which is a good number. In fact, there are some other elements of insurance and healthcare which are killing it. Demand is slowing down a little bit with deregulation and low government spending. But, it should be under control. For the past four months, we have seen some inflation on the good side. Eventually it will be a one-time pass through of the prices and will not cause perpetual inflation. Why? Because everything depends on the labour market.The '21-22 inflation was because the labour market and wages were pushing inflation, but that is not the case now. Wages are dropping to 3.9-3.8% annual increase which is still higher but it is dropping down consistently and it will drop down further. In terms of data, I am with President Trump on data revision. You cannot say that in June and July, 220,000 jobs were created and then suddenly reduce it to 75,000. Federal Reserve members have come out and said that had we seen this data revision, we would have cut the rates in the last meeting. So, some heads need to roll here.I do not know whether the data will improve so quickly, but I am sure somebody needs to own up the accountability if the numbers are revised that much. But in any case, we are getting at least two rate cuts or most likely three this year. I am reasonably confident, inflation will eventually be curtailed.
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