While futures have baked in a quarter-point cut for September, there is now just a one-in-three chance the Fed will opt for a 50 basis point move. But 100bps of easing remains in the curve by year-end and almost 200bps through next June.
Atlanta Fed President Raphael Bostic told Thursday’s Financial Times he was open to an rate cut in September and added the Fed could not “afford to be late” to ease policy.
Even though they ticked up a notch on Thursday, Treasury yields are subdued and the two-year is still below 4%. And after the S&P500’s best close of the month so far on Wednesday, futures on the main stock indexes are higher again ahead of the open.
The dollar remains on the back foot, although the euro has recoiled from 2024 highs above $1.10 as still-unnerving Chinese economic updates jar in Europe too.
While Chinese industrial and retail reports for July were mostly a mixed bag, the elephant in the room remains the ailing housing sector and Thursday’s data showed China’s new home prices fell at the fastest pace in nine years in July.
With 70% of Chinese household wealth held in real estate, a sector that at its peak accounted for a quarter of the economy, consumers have kept their wallets shut tight as property values deflate.
Propping up Chinese stocks from six-month lows on Thursday was the hope that the latest economic news would increase the chance of further monetary easing, and the offshore yuan fell back. The central bank injected cash through a short-term bond instrument and said it would roll over its medium-term lending facility later this month as it extends liquidity support.
By contrast, Japan’s economy expanded by a much faster-than-expected annualised 3.1% in the second quarter, rebounding from a slump at the start of the year and backing the case for another near-term rate hike. In Europe, sterling nudged higher after solid British GDP data for the second quarter.
Globally, however, economic surprise indexes are running at their most negative in more than two years.
Switching back to the day’s diary on Wall Street, the heavy economic data schedule probably gets topped with by the July retail sales report and the still highly sensitive weekly jobless readout.
WalMart adds corporate flavour to the national retail aggregate with its quarterly earnings.
Dow component Home Depot warned of a decline in annual profit and a bigger drop in its annual sales earlier this week as weak discretionary spending dampened expectations. But its shares help up nonetheless.
In deals news, Kellanova surged 7.8% on Wednesday after family owned candy giant Mars said it would buy the Cheez-It and Pringles maker in a nearly $36 billion deal.
