Leading Indicators USA: Spotlight on Jackson Hole

Leading Indicators USA: Spotlight on Jackson Hole

Labor market slowing, manufacturing weak but services resilient. The Fed weighs upcoming rate cuts, while Italian BTPs narrow the gap with French bonds.

U.S. Labor Market and PMI: Current Situation

• Unemployment rate: In July 2025, the U.S. unemployment rate rose slightly to 4.2%, from 4.1% in June. Initial jobless claims increased to 235,000 in the week ending August 16, compared with 224,000 the previous week. Continuing claims suggest a possible further rise in the unemployment rate toward 4.3% in August.
• Manufacturing PMI: According to the August update, the U.S. Manufacturing PMI climbed to 53.3, signaling significant expansion and ending the recent phase of industrial weakness.
• Composite and Services PMI: The Composite PMI came in at 55.3, slightly higher than 55.1, confirming a robust picture of economic growth. Services remain resilient, with the Services PMI at 55.4, a slight decline from the previous reading but still supporting overall positive momentum.

Summary: The labor market shows signs of slowing (rising unemployment, higher jobless claims), but August PMI data strengthen the perception of a still dynamic economy, with manufacturing surprisingly back in expansion.

Jackson Hole Symposium: Outlook and Expectations

Today marks the opening of the 48th Jackson Hole Economic Symposium (August 21–23), focusing on “Labor Markets in Transition: Demographics, Productivity and Macroeconomic Policy.”

• Jerome Powell is expected to clarify the Fed’s stance: markets are pricing in about an 85% probability of a 25 bps rate cut in September, with another move expected by year-end.
• However, core inflation (3.1%) remains above the Fed’s 2% target, which may prevent overly rapid moves.
• Historically, Jackson Hole speeches have often led to higher Treasury yields (10-year yields up an average of +21 bps in the following month).

Outlook for the U.S. Bond Market

• Yields: Treasuries remain stable: 10-year between 4.20% and 4.34%, 2-year between 3.68% and 3.77%, with reduced volatility.
• Scenario: The positive surprise from PMI strengthens the case for a cautious Fed; a less dovish Powell could trigger a rise in yields, especially at the long end.
• Operational suggestion: Preference for intermediate maturities (5–7 years), while awaiting confirmation on the rate path.

Comparison of Bond Markets: Italy, France, and Europe

• Italy–France spread: The 10-year yield gap has narrowed to below 10 basis points, the lowest in two decades.
• BTPs benefit from greater political and fiscal confidence, while France is penalized by rising deficits and political instability.
• The convergence reflects lower perceived risk for Italy compared to the past, while French yields now incorporate a higher risk premium.

In Summary

U.S. Macroeconomy

• Slightly higher unemployment, but PMI beats expectations with manufacturing in expansion (53.3) and composite at 55.3.
• Powell’s remarks at Jackson Hole will be decisive: markets await concrete signals on future cuts, but macro data suggest caution.

Bond Strategies

• Wait for the Fed’s speech before moving into longer durations.
• Defensive positioning with a preference for intermediate maturities.

Europe

• Italy in a phase of “bond renaissance”: BTPs narrowing spreads to French bonds.
• France under pressure, with rising risk perception.

In a context of slightly higher unemployment but surprisingly strong PMI figures, the Fed is likely to stick to a cautious approach. For investors, this translates into prudence in the U.S. and renewed interest in Italian BTPs over French bonds.