June jobs report shows no signs of a recession. But recession trade is already here anyway
The US economy added 372,000 jobs in June, beating forecasts for 250,000, while the unemployment rate stayed at 3.6%, right where it was expected to be.
"A recession call cannot be made if the labor market is not participating," Dutta, the head of economics at Renaissance Macro Research, said. "The US economy continues to add jobs. So, there is no way the recession (if it comes) will be dated to June 2022."
The $S&P 500 Index(.SPX.US)$ edged lower on the first trading day of a shortened week as investors fled from risky assets. Treasury yields retreated. Meanwhile, the dollar climbed, which made commodities priced in the currency less attractive. Oil sank sharply below$100 a barrel during the week.
Dutta's theory explains all the moves above:“This is a recession trade,” said. “There is no other way of describing it.”
"We're not in a recession right now, but the markets are a discounting mechanism and I think the markets see the economy potentially going into one or getting closer to being one," said Dutta, "We've gone some way into pricing in a recession in the markets, but I don't think we're all the way there."
The Fed has "locked themselves" into an aggressive tightening path, perhaps in a bid to avoid the mistake officials made during the start of the pandemic when they labeled inflation as "transitory," he said. But what if inflation has already peaked? Dutta thinks the headline print in July will moderate "quite substantially" as prices of oil come down.
Still, if a recession does come, Dutta warns investors nothing else but one thing: market volatility.
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