Rate cuts by year-end

• Fed: 99 bps (69% probability of 25 bps rate cut at the upcoming meeting)
• ECB: 58 bps (98% probability of 25 bps rate cut at the upcoming meeting)
• BoE: 39 bps (78% probability of no change at the upcoming meeting)
• BoC: 75 bps (79% probability of 25 bps rate cut at the upcoming meeting)
• RBA: 19 bps (94% probability of no change at the upcoming meeting)
• RBNZ: 72 bps (79% probability of 25 bps rate cut at the upcoming meeting)
• SNB: 51 bps (70% probability of 25 bps rate cut at the upcoming meeting)

Rate hikes by year-end

• BoJ: 7 bps (97% probability of no change at the upcoming meeting)

*Where you see 25 bps probability, the rest of the probability is for a 50 bps cut.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

UPCOMING
EVENTS:

• Monday: US/Canada Holiday, China Caixin Manufacturing
  PMI, Swiss Manufacturing PMI.
• Tuesday: Swiss CPI, Swiss Q2 GDP, Canada Manufacturing
  PMI, US ISM Manufacturing PMI.
• Wednesday: Australia Q2 GDP, China Caixin Services PMI,
  Eurozone PPI, BoC Policy Decision, US Job Openings, Fed Beige Book.
• Thursday: Japan Average Cash Earnings, Swiss Unemployment
  Rate, Eurozone Retail Sales, US ADP, US Jobless Claims, Canada Services
  PMI, US ISM Services PMI.
• Friday: Canada Labour Market report, US NFP.

Tuesday

The Switzerland
CPI Y/Y is expected at 1.2% vs. 1.3% prior, while the M/M measure is seen at
0.1% vs. -0.2% prior. The market is expecting the SNB to deliver 52 bps of
easing by year end with a 67% probability of a 25 bps cut at the September
meeting (the remaining 33% is for a 50 bps cut).

SNB’s Jordan last week didn’t sound happy about the strong
appreciation in the Swiss Franc, so we might either see a 50 bps cut in
September or some intervention from the central bank to calm things down a bit.

The US ISM
Manufacturing PMI is expected at 47.8 vs. 46.8 prior. As a reminder, the last month the ISM release was the catalyst that triggered a
huge selloff in risk assets as we got the “growth scare”.

The main
culprit might have been the employment sub-index falling to a new 4-year
low ahead of the NFP report which eventually triggered another wave of selling
as it came out weaker than expected across the board.

Later on, lots of
data in August showed that the weak data in July might have been negatively
affected by Hurricane Beryl, so that’s something that the market will look
at for confirmation.

The S&P Global Manufacturing PMI released two weeks ago wasn’t exactly comforting
though. The index saw the second consecutive contraction and the commentary
was pretty bleak.

The agency said “this
soft-landing scenario looks less convincing when you scratch beneath the
surface of the headline numbers. Growth has become increasingly dependent on
the service sector as manufacturing, which often leads the economic cycle, has
fallen into decline.”

“The manufacturing
sector’s forward-looking orders-to-inventory ratio has fallen to one of the
lowest levels since the global financial crisis. Employment fell in August,
dropping for the first time in three months”,

Wednesday

The BoC is
expected to cut rates by 25 bps bringing the policy rate to 4.25%. The recent CPI report showed some more easing in the underlying inflation
measures and the labour market data was pretty soft.

Overall, it
doesn’t look like the central bank will go for a 50 bps cut but it cannot be
completely ruled out. Including the September cut, the market expects a total
of 75 bps of easing by year end.

The US Job
Openings is expected at 8.100M vs. 8.184M prior. The last report saw a slight increase but the strong downtrend that
started in 2022 remains firmly in place. The quit, hiring and layoff rates
remain low as the labour market has been softening via less hiring rather than
more layoffs.

Thursday

The Japanese
Average Cash Earnings Y/Y is expected at 3.1% vs. 4.5% prior. As a reminder,
the economic indicators the BoJ is focused on include wages, inflation,
services prices and GDP gap.

Moreover, Governor
Ueda kept the door open for rate hikes as he said that the recent market moves
wouldn’t change their stance if the price outlook was to be achieved and added
that Japan’s short-term interest rate was still very low, so if the economy were
to be in good shape, BoJ would move rates up to levels deemed neutral to the
economy.

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
have been on a sustained rise showing that layoffs are not accelerating and
remain at low levels while hiring is more subdued.

This week Initial
Claims are expected at 230K vs. 231K prior, while Continuing Claims are seen at
1865K vs. 1868K prior.

The US ISM
Services PMI is expected at 51.1 vs. 51.4 prior. This survey hasn’t been giving
any clear signal lately as it’s just been ranging since 2022, and it’s been
pretty unreliable. The market might focus just on the employment sub-index
ahead of the US NFP report the following day.

The recent S&P Global Services PMI showed another uptick in the services sector as
growth in Q3 diverged again between Manufacturing and Services.

Friday

The Canadian
Labour Market report is expected to show 25.0K jobs added in August vs. -2.8K
in July and the Unemployment Rate to increase to 6.5% vs. 6.4% prior. It’s
unlikely that the market will care much about this report since we get the US
NFP released at the same time.

The US NFP is
expected to show 165K jobs added in August vs. 114K in July and the
Unemployment Rate to tick lower to 4.2% vs. 4.3% prior. The Average Hourly
Earnings Y/Y is expected at 3.7% vs. 3.6% prior, while the M/M figures is seen
at 0.3% vs. 0.2% prior.

The last month, the US labour market report came out weaker than
expected across the board and triggered another wave of selling in risk assets that
started with the ISM Manufacturing PMI the day earlier.

There’s been
lots of talk about the possible culprit for the weaker figures and it seems
like Hurricane Beryl affected the data.

The BLS said
Hurricane Beryl, which slammed Texas during the survey week of the July
employment report, had „no discernible effect“ on the data.

The household
survey, however, showed 436,000 people reported that they could not report to
work because of bad weather last month, the highest on record for July. There
were 249,000 people on temporary layoff last month.

In fact, the
majority of the increase in the unemployment rate has been due to people on
temporary layoff. The market will want to see if July’s data was indeed
negatively affected by temporary factors.

As a reminder, the
Fed is very focused on the labour market now and this report will decide
whether they will cut by 25 bps or 50 bps at the upcoming meeting.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

August 2024 official Chinese PMIs from the National Bureau of Statistics (NBS):

Composite is 50.1

• prior50.2

August Manufacturing PMI 49.1

• expected 49.5, prior49.4

Services 50.3

• expected 50.0, prior 50.2

—

The Chinese economy has been showing, and continues to show, a patchy and uneven recovery. Key trouble spots include:

• an uncertain property sector outlook, the sector is mired in debt
• subdued consumer confidence and demand
• manufacturing overcapacity in some sectors
• still below target underlying inflation (impacting this are the above points on weak domestic demand and supply overcapacity)
• on the horizon are potentially higher tariffs on Chinese exports

Authorities have been lobbing targetted support at the economy, in a piecemeal fashion. There is still plenty of work to do.

—

China has two primary Purchasing Managers‘ Index (PMI) surveys – the official PMI released by the National Bureau of Statistics (NBS) and the Caixin China PMI published by the media company Caixin and research firm Markit / S&P Global.

• The official PMI survey covers large and state-owned companies, while the Caixin PMI survey covers small and medium-sized enterprises. As a result, the Caixin PMI is considered to be a more reliable indicator of the performance of China’s private sector.
• Another difference between the two surveys is their methodology. The Caixin PMI survey uses a broader sample of companies than the official survey.
• Despite these differences, the two surveys often provide similar readings on China’s manufacturing sector.
• The Caixin manufacturing PMI will follow on Monday, services on Wednesday

This article was written by Eamonn Sheridan at www.forexlive.com.

• US July core PCE +2.6% y/y vs +2.7% expected
• OPEC+ is likely to proceed with a planned gradual production increase from Oct — report
• US August UMich final consumer sentiment 67.9 vs 68.0 expected
• Canada Q2 GDP +2.1% q/q annualized vs +1.6% expected
• Dallas Fed trimmed mean PCE price index for July 1.7% versus 1.8% in June
• US weekly Baker Hughes oil rig count unchanged at 483
• US dollar specs turn short for the first time since February
• ECB’s Villeroy: It would be fair and wise to cut rates in Sept
• Goldman Sachs workers face the annual cull

Markets:

• Gold down $19 to $2501
• WTI crude oil down $2.47 to $73.44
• US 10-year yields up 4.3 bps to 3.81%
• S&P 500 up 0.6%
• USD leads, JPY lags.

It was tough to tie the fundamentals to the market moves today, as is often the case at month end. Tokyo CPI was hot earlier and US PCE was a tad cool and normally that’s the recipe for a USD/JPY decline but it was just the opposite as the pair climbed 116 pips in a steady rally that started in Europe and never eased.

That was part of broad bids in the US dollar that were supported somewhat by rising Treasury yields. However the 30 pip decline in the Australian dollar certainly went against the rip in equities.

The Canadian dollar was particularly volatile and rallied initially on a strong GDP number. However the details of that report showed no growth in June and July plus the vast majority of the growth in the quarter was driven by government spending. That led to a rethink, particularly following the drop in oil prices. All told, there were four 30-pip straight line moves in USD/CAD trading to round out a lively month. That will give North Americans plenty to digest over the long weekend.

The euro finishes the month above 1.10, which is a nice victory but a cent-and-a-half from Monday’s high of 1.1201. It declined in four of the five days this week in a setback after three weeks of strong gains.

Similarly, cable fell for the third consecutive day and showed few signs of life in month end trade.

On net, the US dollar rebound balances the market heading into what’s going to be a lively September. Have a great weekend.

Justin and Eamonn will be back next week.

This article was written by Adam Button at www.forexlive.com.

There was no lack of drama in the final day of equity trading in what was a wild ride in August. The S&P 500 opened strongly and then gave it all back to trade in negative territory at midday. However some steady bids emerged in the afternoon before a massive wave of buying late.

Much of it was likely technical into a month-end long weekend but it wraps a bow on a lively one.

• S&P 500 1.0%
• Nasdaq Comp +1.1%
• DJIA +0.6%
• Russell 2000 +0.3%
• Toronto TSX Comp +0.2%

On the week:

• S&P 500 +0.25%
• Nasdaq Comp -0.9%
• Russell 2000 -0.4%
• Toronto TSX Comp -0.1%

On the month:

• S&P 500 +2.3%
• Nasdaq Comp +0.6%
• DJIA +1.8%
• Russell 2000 -2.0%
• Toronto TSX Comp +0.6%

Those monthly numbers aren’t impressive at first blush but they come after massive selling at the outset.

The Nasdaq Composite monthly chart now shows a double doji. That’s a setup for a big move to come. Given the impressive recovery from the August declines, I’ll take the upside but it’s tough to have confidence after the Nvidia decline and with a negative September seasonal backdrop.

This article was written by Adam Button at www.forexlive.com.

The main driver of US dollar strength over the past number of years was ‚US exceptionalism‘. That’s meant stronger growth and higher US interest rates.

The stronger growth narrative is still in place — even if it requires a deficit at 7% of GDP — but Fed Chairman Jerome Powell has deconstructed the second part of narrative. His comments suggest the Fed won’t tolerate a rise above 4.4% and that the FOMC plans to cut rates even with strong growth.

That’s prompted a re-think in the market and some broad softening of the US dollar (at least until today).

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs plans to layoff 3-4% of its workforce or between 1300 and 1800 people, according to the WSJ.

This shouldn’t come as a surprise as the company trims 2-7% of its workforce annually on performance factors. The layoffs have started and will continue through the autumn.

The cutthroat culture finally appears to be making shareholders money after trading virtually flat from 2018 to early this year.

This article was written by Adam Button at www.forexlive.com.

• ECB Muller says confidence growth in Sep cut but after that is less certain
• EU commission chief says must play stronger role in defence
• AUD the strongest and CHF the weakest
• Japan’s MOF reports zero yen intervention from July 30 to Aug 28
• Eurozone flash HICP YY 2.2% vs 2.2% expected
• ECB Kazaks says open to discussing a September cut
• BoE consumer credit 1.215B vs 1.300B expected
• Spanish current account balance 5.02B vs 5.56B prior
• China regulator to guide Alibaba towards better compliance and service quality
• German Unemployment Rate 6.0% vs 6.0% expected
• ECB Rehn says falling growth and inflation makes case for a Sep rate cut
• What are money markets expecting from September’s central bank decisions
• ECB’s Schnabel urges caution and emphasizes data-driven policy
• Swiss KOF indicator 101.6 vs 100.6 expected
• French producer prices YY -5.4% vs -6.0% prior
• French GDP QQ final 0.2% vs 0.3% expected
• French prelim HICP YY 2.2% vs 2.1% expected
• What are the main events for today?
• Deepening downturn expected in China’s property market for 2024-2025
• UK nationwide house prices YY 2.4% vs 2.9% expected
• German import prices MM -0.4% vs 0.0% expected
• Japan housing starts YY -0.2% vs -0.1% expected
• Japan construction orders YY 62.8% vs -19.7% prior
• BofA looking for EUR outflows and USD inflows
• Mostly messy day for sentiment so far
• What do we have coming up for the calendar today

Markets:

• CAD leads, CHF lags on the day
• European equities higher;
  S&P 500 futures up 0.44%
• US 10-year yields flat at
  3.856%
• Gold
  down 0.05% to $2,519
• WTI
  crude up 0.29% to $76.18
• Bitcoin
  up 0.19% to $59,474

It was a quiet session with subdued moves across the markets. The newsflow was once again a bit dull as the only notable release was the Eurozone Flash CPI which came out in line with estimates.

ECB speakers continue to support a September cut, which is fully priced in anyway, but they emphasize data dependency for the next cuts. The attention will now switch to the US PCE report due in an hour but it’s unlikely to trigger big moves unless we get strong deviations from the expected figures.

It’s all about the next week as we will get many top-tier economic indicators and the most important NFP report of the year.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Reuters poll – U.S. home prices to rise 5.4% in 2024, 3.3% in 2025, and 3.4% in 2026 (vs 5.0%, 3.3%, and 3.4% in May poll).Reuters poll – U.S. existing home sales to rise to 4.15 million unit rate in Q4, 4.24 in Q1 2025 (vs 4.28 and 4.40 million in May poll).

This article was written by Arno V Venter at www.forexlive.com.

• ECB Muller: confidence is growing in a September rate cut
• ECB Muller: the policy path after the September meeting is less certain

This article was written by Arno V Venter at www.forexlive.com.