Schroders Investment: The risk of an economic downturn in the United States is rising, but a "soft landing" remains the main theme; the outlook for the bond market is diverging

According to the Zhitong Finance APP, Julian Houdain, Global Head of Unconstrained Fixed Income at Schroders, pointed out that the state of the U.S. labor market has always been a focus for the Federal Reserve and global markets. With the U.S. employment data for July being weaker than expected, along with downward revisions to the data for May and June, the market's assessment of its health has undergone a significant shift in recent weeks. Considering these factors, the probability of an "no landing" scenario has been reduced to 10%, while the potential for a "hard landing" scenario has been increased to 20%. However, despite the change in risk bias, the baseline scenario remains that a benign economic "soft landing" is most likely to occur in the medium term.

Schroders stated that the U.S. economy is in a state of "muddling through," with growth not particularly strong but still positive. The likelihood of the economy stabilizing from its current level is believed to be greater than the continued downward momentum. While tariffs have impacted growth, they have not led to a collapse, and consumers seem able to cope with rising prices. Market uncertainty is diminishing. Therefore, there is currently no concern that the U.S. economy will fall into recession.

However, the relatively weak labor market data, including a slowdown in job growth and a narrowing range of industries for new positions, does reflect an increase in the vulnerability of the U.S. economy. This will affect the Federal Reserve's willingness to accelerate the easing of monetary policy. There is not enough justification for a 50 basis point rate cut in September, but the Federal Reserve does have room to lower rates faster than previously expected.

In Europe, as tariff uncertainties decrease, the economic environment in the region continues to improve, and the European Central Bank has clearly stated that it does not expect to cut rates further. Schroders agrees with this assessment, as the signals from ECB President Christine Lagarde provide insights into the European economic outlook. Schroders holds a relatively neutral view on UK bonds. The Bank of England made hawkish comments at its recent meeting, and with the continued positive outlook for UK economic growth, UK government bonds are unlikely to show much strong performance in the short term