Bonds’ appeal rises as rate cuts loom

IN AUGUST, global purchasing managers’ indexes (PMIs) for manufacturing in advanced economies continued to point to declines in business activity. Services activity has held up better, but may not remain unaffected by the decline in manufacturing.

A slowing jobs market will contribute to a downturn in household spending and lead to a slowdown in the US economy. We expect three 25-basis-point rate cuts from the US Federal Reserve between September and the end of 2024, and four more in 2025.

But the Fed’s reaction to the slowdown in the labour market will need monitoring. While our base case is that the downturn in jobs will be manageable, downside risks are growing.