US Economy Shows Signs of Strain as Pending Home Sales Slide and Trade Deficit Widens

The US economy is facing a series of challenges, with pending home sales and trade deficit numbers telling a story of strain. According to recent data, pending sales of existing homes in the US continued to slide in January, marking a concerning trend in the housing market. Meanwhile, the US trade deficit widened in December to $70.3 billion, resulting in a full-year deficit of $901.5 billion.

This widening trade deficit is likely to put pressure on the US economy, particularly in the context of the ongoing trade tensions with China. The deficit is also likely to be a topic of discussion in the upcoming presidential election, with candidates from both parties vying for a solution to the issue.

In a related development, some portfolio managers are betting against US bonds, citing the economy's resilience and a potential mismatch in the bond market's expectations for interest rate cuts. According to a report, Invesco Ltd. and Carmignac are among the firms that are taking a contrarian view on the bond market, arguing that the Federal Reserve is unlikely to cut interest rates as aggressively as expected.

The bond market's consensus view is that the Federal Reserve will cut interest rates at least twice more this year, but Invesco and Carmignac are skeptical of this view. They argue that the US economy is showing signs of resilience, with low unemployment and steady economic growth, and that the Fed may not need to cut rates as aggressively as expected.

"We think the bond market is mispricing the probability of rate cuts," said a portfolio manager at Invesco. "The economy is still growing, and we don't see a need for the Fed to cut rates as aggressively as the market is expecting."

This contrarian view is not without its risks, however. If the Fed does indeed cut rates, the value of US bonds could rise, leaving Invesco and Carmignac with losses. But the firms are willing to take that risk, arguing that the potential rewards outweigh the potential costs.

The debate over interest rates and the bond market is likely to continue in the coming months, with investors and policymakers closely watching the Fed's next moves. In the meantime, the US economy will continue to face challenges, including the ongoing trade tensions and the decline in pending home sales.

As Mike McKee reported on "Bloomberg Open Interest," the pending home sales data is a concern for the US economy, particularly in the context of the wider trade deficit. "The pending home sales data is a leading indicator of the housing market, and it's not looking good," McKee said. "The trade deficit is also a concern, particularly in the context of the ongoing trade tensions with China."

Overall, the US economy is facing a series of challenges, from the decline in pending home sales to the widening trade deficit. While some portfolio managers are betting against US bonds, citing the economy's resilience, the debate over interest rates and the bond market is likely to continue in the coming months.