Jupiter Asset Management: If the pace of U.S. inflation decline is fast enough, it will benefit the bond investment environment
Jupiter Asset Management stated that if U.S. inflation falls quickly enough, it will benefit the bond investment environment. Although the Federal Reserve has cut interest rates by 1% consecutively, the speed of inflation decline is more important. Bond investment director Matthew Morgan pointed out that with current inflation slowing down, attention should be paid to employment data, as a deterioration in the job market could lead to a hard landing for the economy, which in turn would affect interest rates and government bond yields. He emphasized that the market needs to take changes in employment data seriously, as historically, a deteriorating job market often signals an economic recession
According to the Zhitong Finance APP, the Federal Reserve has cut interest rates at three consecutive meetings, totaling a 1% reduction. Jupiter Asset Management indicates that it is not too concerned about short-term interest rate changes; the most important factor is the speed of inflation decline. If the decline is fast enough, it will benefit the bond investment environment. Matthew Morgan, the bond investment director at Jupiter Asset Management, pointed out that the reason for not caring about the extent of the rate cuts is due to inflation concerns. He stated that we are currently in a world where inflation is continuously slowing down, and the same is true for Europe and the United States, with downward pressure on inflation expected to persist.
He believes that the biggest issue now is the neutral interest rate. The lower the neutral interest rate, the more returns one can obtain from government bonds, and there is almost no consensus in the market on the definition of the neutral interest rate. Currently, in the Federal Reserve's dot plot, some officials believe the neutral interest rate is below 2.5%, while others expect it to reach 4%, which is quite interesting.
Matthew Morgan mentioned that if the U.S. job market deteriorates, leading to increasing investor concerns about consumer spending and wages, it could lead to a scenario of a hard landing for the economy. In that case, interest rates could also drop significantly, allowing profits from government bonds.
Matthew Morgan emphasized that the market currently needs to focus on employment data. In fact, Federal Reserve Chairman Jerome Powell has also suggested that authorities should shift their focus from inflation to the job market, but the job market situation is actually quite unstable. The Shaman Law has been triggered; although this does not mean that the economy will necessarily enter a recession, history often shows similar trends, so the market must take it seriously. Employment data clearly indicates that the labor market is deteriorating, and historically, when the job market begins to worsen, the economy will experience a hard landing.
Regarding the stock market, he pointed out that in the past, after the U.S. initiated interest rate cuts, the stock market often turned negative after a period of time. Historically, the Federal Reserve has almost always tightened for too long and then started cutting rates too late. Although it ultimately succeeded in curbing inflation, it often also led to economic recession. At this stage, it is uncertain whether a similar situation will occur again, as history does not necessarily repeat itself