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Employment data sharply downward ignites expectations of interest rate cuts in September, and the market focuses on US CPI data
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Hello everyone, today XM Foreign Exchange will bring you "[XM Group]: The sharp downward revision of employment data triggers the expectation of a September interest rate cut, and the market focuses on US CPI data." Hope it will be helpful to you! The original content is as follows:
After the Federal Reserve's July interest rate meeting announced, investors are facing a rather special market environment. With the release of employment data in July, the current labor market structure has changed significantly www.xmh100.compared with the situation before the data was released at 8:30 am local time on August 1. The latest data shows that employment growth in the past three months is much weaker than originally expected.
Employment data was significantly weaker
In July, non-agricultural employment increased by 73,000, significantly lower than the market expectations of 104,000; the total data in the first two months was revised down by 258,000, the largest downward revision since 1979 (non-epidemic-related). Affected by this, the growth rate of moving average employment in the three months plummeted to only +35,000.
Powell's focus on unemployment rate rose slightly by 0.1 percentage point to 4.2% (still at a low level), in line with expectations.
Although a job report and two rounds of inflation data will be released before the September FOMC meeting, the report has changed the labor market basis for Powell's policy formulation.
The Jackson Hall Annual Meeting later this month (convened from August 21 to 23) will become a key window for Powell to adjust his forward guidance.
In terms of non-agricultural data alone, interest rate cuts in September have entered the policy option. If subsequent inflation reports show that the tariff transmission effect is intensified, a policy dilemma of "soft employment but high inflation" will be formed.
After the non-farm data were released, the 2-year and 10-year yields fell by more than 20 basis points and 10 basis points respectively; this reflects the market's repricing policy expectations after last week's "hawkish" FOMC meeting. U.S. Treasury yields fluctuate last weekThe rebound is still far from regaining the decline on August 1.
Whether the U.S. Treasury yield can continue its upward trend (especially the 10-year period) will depend on key inflation data such as CPI on August 12.
CPI Forecast
The market generally expects that the overall CPI in the United States will grow by 0.2% month-on-month, 2.8% year-on-year, and the core CPI will grow by 0.3% month-on-month and 3.0% year-on-year.
Goldman Sachs economists predict:
The core CPI is expected to rise by 0.33% month-on-month in July (market expectations +0.3%), corresponding to a year-on-year increase of 3.08% (market expectations +3.0%). The overall CPI is expected to rise by 0.27% month-on-month (market expectation +0.2%), and the pushing factor is the rise in food prices (+0.3%) and the inhibitory factor is the decline in energy prices (-0.6%). Our forecast is consistent with expectations of a 0.31% increase in core PCE in July.
In the www.xmh100.coming months, we expect tariffs to continue to push up monthly inflation, and the core CPI monthly increase is expected to be between 0.3% and 0.4%. In addition to the tariff impact, we expect potential inflation trends to fall further this year, reflecting the weakening of housing rents and labor market contributions.
Bank of America forecast:
We expect the overall CPI to rise by 0.24% month-on-month in July and the core CPI to rise by 0.31% month-on-month. If the forecast is accurate, the year-on-year increase of core CPI will rise from 2.9% to 3.1%. Key drivers include tariffs pushing up www.xmh100.commodity prices and air ticket prices driving inflation in core services.
The area circled is the change in July last year. In July 2024, CPI rose 0.14%, and core CPI rose 0.19%. Therefore, any data above the July data will drive up year-on-year inflation.
Faced with the structural changes in the labor market and the potential monetary policy shift of the Federal Reserve, how should fixed-income investors plan their bond portfolios? If the Fed does turn on the "interest rate cut mode", the front end of the yield curve is expected to show relative advantages. Investors may consider laying out short-term strategic products such as SHAG and USSH. If the Fed turns to the interest rate cut cycle this year, such assets are expected to achieve excess returns and retain some of the cash to wait for tactical opportunities after the August data is implemented.
In the short term, weak employment will dominate, strengthening the expectation of interest rate cuts, which put downward pressure on the US dollar (the front-end advantage of the yield curve also implies a downward trend in short-term interest rates). The medium term depends on CPI and other data on August 12: If inflation is high, the US dollar may rebound; if interest rate cut cycle is confirmed, the US dollar may continue to be under pressure.
The above content is all about "[XM Group]: The sharp downward revision of employment data triggers the expectation of a September interest rate cut, and the market focuses on US CPI data". It was carefully www.xmh100.compiled and edited by the XM Forex editor. I hope it will be helpful to your transactions! Thanks for the support!
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