Episode Details

In a US economy that is showing significant signs of deceleration, an acceleration in employment in last week’s job release was a comforting factoid. The unemployment rate remained unchanged at 4.1% near full-employment levels. The Fed will most likely treat this latest economic signal as neutral when deciding on action for the September rate announcement.

However, there will be dissenting voices in the Fed. Friday sees the release of August CPI in the US. Consensus is for an unchanged 3.4% headline number. This is way higher than the Fed’s long-term target of 2%. But even with that in mind, it’s unlikely that the newly appointed governor will want to lock horns with the administration just yet and will likely view a ‘no rise’ September FOMC session as a balance between being accused as partisan (despite having been appointed to the role by this administration) and the potential relatively minimal damage to the economy by holding off for a couple of months.

In the meantime, the bond market is likely to get increasingly nervous and the current bond sell-off will gain further momentum. US 10 year treasury yields are at 4.8%. The rate is back to levels not seen since Jan 2025. If the latest inflation print in the US exceeds consensus, there is a strong chance that the rate breaks through 5% sending shivers down the Fed’s and Treasury’s accumulated spines!

An interesting battle is brewing on the mid-term hustings, Data Centres. The issue has become partisan. DCs use significant real estate, water and electricity on the one hand but create jobs, drive productivity nationally and despite their attempts to minimise their tax toll, are still a net revenue benefit for states. 

The likely compromise will be for DCs to procure their own electricity needs and offer community based incentives to locate in certain areas. In the short term this will still imply significantly higher utility prices. The constraint in supply is likely to drive the utilities sector back into the limelight.

We also discuss asset allocation using a Passive/Aggressive approach using cheap ETFs to reflect a more diversified and less correlated portfolio. As an example, the equal weight S&P500 Index has generated a near 3% return over he summer compared to the market cap weighted index at 2.5%. 

An over concentration on the MAG7 (whether you like the group or not, and we do) is still creating portfolio risk through concentration. 

In this week’s episode we discuss the sectors to focus on going toward the year-end and sectors to stay away from.

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