Key Takeaways

With his Jackson Hole speech, Federal Reserve Chair Jerome Powell all but promised rate cuts were coming. That's cool. But it is why that matters. Is the economy struggling under tight monetary policy? Not really. Are asset markets beginning to crack and show signs of stress, causing angst among policymakers? Not really. Is inflation decelerating and the labor market cooling? Yes.

These "initial conditions" matter. The outlook for the economy and markets would be different if something were breaking. Breaking is bad. Cooling is an entirely different story.

Kansas City Fed Labor Market Conditions Index

Source: Kansas City Fed, as of 7/1/24.

Conveniently, the Kansas City Fed compiles major labor market indicators into a single, useful data series. The labor market has undoubtedly softened from its post-COVID peak. It should be noted how quickly the labor market went from Great Recession weakness to near-all-time tightness. The labor market is cooling, but it is not collapsing. Those two things can coexist.

Inflation Two Ways

Source: Bureau of Labor Statistics, as of 7/1/24.

The inflation story is not dissimilar. Inflation pressures have not magically collapsed, but-as Chair Powell made clear in his speech-it is all about confidence that the trend will continue. Confidence is different from a declaration of mission accomplished. Part of the confidence may stem from a dramatic return to normal on the goods side of inflation (commodities less food and energy). Goods inflation surged, then fell back to normal levels of deflation. Services tend to be stickier, but that has begun to fall as well.

Growth Has Been Good

Source: Bureau of Economic Analysis, as of June 2024.

Growth has held up well. There have been bumps along the way, but growth has not fallen off a cliff. GDP is useful, but final sales is a good check. Final sales strips the volatility of inventories and net exports from the calculation, and the private version goes a step further and eliminates the changes in government spending as well. Intriguingly, the quality of composition of growth over the past 18 months has been high, as evidenced by the steady growth in final sales.

All of that is to say, the rate cuts are coming without panic. The economy-as a whole-is fine. There have been headwinds. Manufacturing and housing have been rather dismal in the wake of interest rate increases. But those are also set to benefit from the shift to a less restrictive stance from the FOMC. The headwinds of yesterday may well become the tailwinds of tomorrow. We will see.

Source: Federal Reserve Economic Data (FRED), as of March 2024. 

There are questions no one wants to ask. What if corporate America navigated this cycle well and the historically elevated multiples reflect management competence instead of investor euphoria? What if rate cuts are not stoking a bubble-they are extending a nominal GDP and wage mini-boom? What if investors should be worried-not by budget deficits or the fall of the dollar, but 1) that the U.S. economy has plowed through every hurdle; 2) the promised recession never materialized; and 3) COVID-19 resulted in better supply chains and a more diversified economy?

When looking to the future, there are always reasons to be fearful. Maybe it's not that bad. Maybe it's even good. Maybe it's great. The future should be embraced, not feared. There are plenty of headwinds for the U.S. economy. But those may well be the tailwinds of tomorrow.

Source: SEEKING ALPHA

South Korean tech conglomerate Naver is launching its first-ever crypto wallet, Naver Pay Wallet, in partnership with the sport-focused blockchain Chiliz.

Chiliz, a layer 1 blockchain built around supporting fan tokens, said in an Aug. 29 X post that it was chosen as the inaugural blockchain for the wallet, which is available to what it reported was over 33 million Naver users.

Naver — known as “the Google of South Korea” — runs the country’s most used search engine. It was the most visited website in South Korea last month with 1.7 billion visits, according to Similarweb.

The wallet is managed by Naver subsidiary Naver Pay, which reportedly has over 97,000 merchant users.

“The Naver Pay Wallet is not aiming to become a typical crypto wallet, but a service around utility and loyalty blockchain technology,” Chiliz founder and CEO Alexandre Dreyfus told TechCrunch.

The wallet is in beta and is non-custodial — meaning users will retain their wallet’s private key — and can hold both cryptocurrencies and non-fungible tokens (NFTs).

Dreyfus said more functionality is yet to come, with planned integrations with decentralized apps (DApps), fan tokens, and a merchant loyalty program.

He added the target customers are “tech-savvy,” already use Naver Pay digitally, and are “interested in exploring blockchain technology, particularly in the realms of sports, entertainment, and digital assets.”

While the Chiliz blockchain is the wallet’s first, Dreyfus said Naver could add support for a wider range of blockchains in the future.

Naver’s crypto wallet comes a day after messaging app LINE — which the company launched in Japan in 2011 and still owns a major stake in — also moved into crypto.

LINE is set to get so-called “mini DApps” — blockchain-based applications that work within the messaging app — after the Kaia blockchain launched its mainnet on Aug. 29.

The Kaia chain was formed with the February merger of LINE’s Finschia blockchain and the Klaytn blockchain from major South Korean social app maker Kakao.

Source: COINTELEGRAPH

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Ratings agency Fitch said on Thursday the U.S. fiscal profile is likely to remain largely unchanged regardless of who wins the upcoming presidential election, as it affirmed the United States of America's credit rating at "AA+", citing structural strengths including high per capita income and financial flexibility.

Democratic Vice President Kamala Harris' late entry in the presidential race after President Joe Biden's withdrawal in July tightened the race against Republican candidate Donald Trump. A Reuters/Ipsos poll this week showed she leads 45% to 41%.

"The outcome of the upcoming Nov. 5, 2024 presidential and congressional elections will be important for U.S. economic and fiscal policies," Fitch said in a statement.

"However, Fitch believes the underlying fiscal position will remain largely unchanged despite the differing economic objectives, tax policies, and spending priorities of Vice President Kamala Harris and former President Donald Trump."

The agency said it expects most of the tax cuts introduced by Trump in 2017 to be extended under either candidate, impacting revenues and contributing to wider budget deficits.

"The government has failed to meaningfully tackle large fiscal deficits, the growing debt burden and looming increases in spending associated with an aging population," it said.

Fitch cut the U.S. government's top credit rating by one notch last year, drawing an angry response from the White House. The downgrade came after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement that lifted the government's $31.4 trillion borrowing limit, ending months of political brinkmanship.

On Thursday, the agency said it maintained its rating, with a stable outlook, due to the U.S. economic strength and financial flexibility coming from the issuance of U.S. dollars, the world's leading reserve currency.

Still, it said high fiscal deficits and the debt burden put the country below the median of equally rated sovereigns.

"The U.S. standards of governance are also below its 'AA' rated peers," it said.

Source: The edge markets