ALEX BRUMMER: Wall Street faces a storm as US economy heads for slowdown

No economic data is more closely scrutinized in the United States than the monthly employment figures.

So there was intense interest in the latest nonfarm payrolls data, which showed that job creation, which had previously been solid, is now at its lowest level since mid-2020 over the past three months.

So even though the overall unemployment rate fell to 4.2 percent of the workforce, there is growing concern that the buoyant US economy is headed for a slowdown, if not a recession.

Putting so much weight on a single economic figure may be a mistake, but the repercussions can spread far and wide. In July, a surprising fall in the pace of job growth sent stock markets around the world into a tailspin. Now it is happening again.

The weakening US job outlook will almost certainly hasten an era of lower borrowing costs. Federal Reserve Chairman Jay Powell was clear at the Jackson Hole symposium in August that it was time to cut US interest rates.

This view was echoed by New York Federal Reserve President John Williams – who runs the day-to-day operations of the money market – in a speech yesterday, dispelling any doubt that the time had come to cut US money costs.

Several major central banks, including the Bank of England and the European Central Bank, have already cut rates.

The big debate now is whether the US central bank will risk cutting the benchmark federal funds rate, which has risen from 5.25% to 5.5%, by half a percentage point at its September session. There are concerns that the Fed has overdone monetary medicine and kept US rates too high for too long.

Amid geopolitical turmoil and rising trade barriers around the world, there are fears that the much-hyped soft landing could become much harder. Added to this is uncertainty over the outcome of the US election. Both presidential candidates are likely to spend more. Kamala Harris, part of Biden’s fiscally out-of-control years, is far more cautious than Donald Trump. It is estimated that she could add as much as $5.8 trillion to the US deficit over the next decade, more than five times that of her Democratic rival.

Traditionally, falling interest rates are good for stocks and bad for bonds. But this time rates are not expected to bottom out, as they did during the great financial crisis and COVID-19. Moreover, stock market valuations are high and profits are being made. This week, the Oracle of Omaha, Warren Buffett, took the opportunity to book a $7bn (£5.3bn) profit on Bank of America shares. This follows recent sales of tech holdings.

Keep seat belts tight.

Cyber ​​theft

The sudden and unexpected departure of Poppy Gustafsson as CEO of cybersecurity pioneer Darktrace is disconcerting. The fact that it comes on the eve of the company’s acquisition by US private equity firm Thoma Bravo is not good news.

High tech is an industry built on scientific and software skills, and these largely fall to the people at the top. It is hard to imagine most of the “magnificent seven” without the technological genius of their founders. Thoma Bravo can’t possibly be too happy about Gustafsson’s departure, even though she has agreed to become a non-executive. Being an “independent” on the board of a private equity-controlled company is pointless.

The basic premise of buyout firms is that companies can be run much more efficiently behind closed doors, without the fussy interventions of non-executives worried about bosses and derailed governance.

It’s unclear whether the recent death of Mike Lynch, an early Darktrace backer through Invoke Capital, was a factor in Gustafsson’s decision, but we know from Lynch’s Autonomy saga that selling out can be traumatic.

Facing the music

Live music lovers are still smarting from the discovery that Oasis ticket distributors implement dynamic pricing to maximise returns. They may be upset to learn that private equity tycoons KKR recently spent £1bn on Superstruct Entertainment, which organises live experience festivals across Europe, such as the world’s biggest heavy metal festival in Germany and the Y Not Festival in Derbyshire.

Fans should not expect tickets, merchandise and concessions to become any cheaper.