Can Stocks Sustain a Rebound Even as Recession Fears Return?
Can Stocks Sustain a Rebound Even as Recession Fears Return?
By:Ilya Spivak
Slowing US growth walloped stock markets last week. Now what?
- Stock markets suffered a big setback amid a flood of US macro news last week.
- US services-sector ISM survey in focus as growth concerns move to center stage.
- An autopilot BOE rate cut is in view, while China’s trade data flags weakness.
Stock markets swooned alongside Treasury bond yields last week as deeply disappointing US jobs report warned that the world’s biggest economy is weaker than previously thought. The numbers came on the heels hollow gross domestic product (GDP) data. The US dollar still managed a strong showing as the Federal Reserve resisted rate cuts.
Fed Funds futures price in 125 basis points (bps) in stimulus between now and the end of 2026. That marks a dramatic dovish departure from the Fed’s forecast, which sees 75bps cuts over the same period. Traders and central bank officials broadly agree on about 50bps in 2025, but markets see 71bps next year, and the Fed just 25bps.
Against this backdrop, here are the key macro waypoints to consider in the days ahead.
US ISM services PMI survey
The Institute of Supply Management (ISM) is expected to report that the pace of economic activity growth in the US service sector accelerated for a second consecutive month in July after a shock contraction in May. A pickup was telegraphed in analog purchasing mangers index (PMI) data from S&P Global published two weeks ago.
Traders will size up the result against the sharply dovish shift in Fed rate cut expectations. Notably, the companion manufacturing sector ISM reading disappointed last week, pointing to deepening contraction. A similar let-down on the services side may bolster confidence in the markets’ recalibration of the monetary policy outlook.
Bank of England (BOE) interest rate decision
The UK central bank is widely expected to issue a 25bps interest rate cut, bringing its target Bank Rate to 4%. Benchmark one-month SONIA rate futures have priced in one more 25bps reduction by the year’s last meeting in December, as well as a single further cut in 2026.
BOE policymakers seem to be in a difficult position. Leading PMI data hints the economy cooled in July, yet the latest inflation data puts price growth at a bubbly 3.6%, the highest in 17 months. Nevertheless, policy expectations have been remarkably stable. The British pound may weaken if a sense of autopilot is reinforced.
China trade data
Export and import growth is seen taking a step in the wrong direction when China publishes July’s update of trade figures this week. Cross-border sales are seen rising 5% year-on-year, pointing to ongoing moderation after a pop in March and April amid front-running of incoming US tariffs. Imports are expected to fall 1%, a sign of weak domestic demand.
China continues to look anemic after marking the ninth consecutive quarter of country-wide deflation at mid-year. Softening trade data may underscore as much, stressing how worries about global recession may become increasingly acute if the US economy is beginning to slow without an offset in the world’s second-largest economy.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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