Attention now switches back to the macro world, with the significant backdrop of a likely first Federal Reserve rate cut in the cycle next month.
Even hawkish Atlanta Fed boss Raphael Bostic said overnight that it may be “time to move”, even though he retained the right to see some more data before making up his mind.
On that score the next ingredients come later today with another critical health check on the labor market and weekly jobless claims, with the Fed’s favored PCE inflation gauge due out tomorrow.
A punchy 100 basis points of Fed easing is still priced into the futures market by year-end – so perhaps there’s some room to row that back, regardless of thinking on the first move in September.
Despite a heavy week of Treasury debt sales, that Fed picture remains a balm for the bond market. Two-year yields recorded their lowest New York close in more than a year on Wednesday and remained subdued at 3.86% first thing today, and 10-year yields slipped back too.
The global inflation picture still appears benign.
Oil prices remain under wraps even against unsettling supply threats and continue to register year-on-year losses of up to 7%. U.S. retail gasoline prices are down more than 14% on this time last year, the deepest annual loss in 12 months.
Inflation fell in six important German states in August due to lower energy prices, suggesting Germany’s national inflation rate could decline noticeably this month.
Economists polled by Reuters forecast a harmonised national inflation rate in Germany – the euro zone’s largest economy – of 2.3% in August, down from 2.6% the previous month. But the readout from the states means than could now come in even lower.
With markets already pricing a second interest rate cut this year from the European Central Bank even before the Fed meets next month, the euro fell back sharply on Thursday and lifted the dollar index more broadly.
Just as important, money markets now see a 70% chance of third ECB cut in October.
And in China, the offshore yuan surged to its strongest level in more than three weeks despite mainland stocks there ending in the red again.
UBS on Wednesday cut its 2024 economic growth forecast for China to 4.6% from 4.9%, as it expects weaker property activity to have bigger than previously assumed drag on the overall economy.
But in some sign of detente between the world’s two biggest economic powers, U.S. National Security Adviser Jake Sullivan met Chinese President Xi Jinping in Beijing on Thursday and wrapped up three days of wide-ranging talks aimed at easing tensions between the two ahead of November’s U.S. election.
