Created
: 2024.09.03
2024.09.03 00:30
The debate on whether the FOMC should cut by 25 or 50bps could well become clearer by the end of the week when the non-farm payrolls data report for August arrives. There are plenty of economic indicators that point to a weakening labour market and if that is confirmed by a lower-than-expected print on Friday, it will likely trigger another big rates and dollar move given the OIS market pricing is currently well short of pricing in a 50bps cut at the meeting on 18th September, MUFG FX analysts note.
"Last week the consumer confidence data revealed an upturn in confidence but despite this the jobs index worsened and further underlined the prospect of the unemployment rate continuing to drift higher. The Fed's thinking on the labour market certainly seems to have shifted following the benchmark revision of the NFP data that revealed a 818k downward revision to payrolls in the year to March 2024 - the second largest on record. That data may harden the Fed's view on the unemployment rate rising and average hourly earnings growth slowing. Both of those indicators haven't changed due to the NFP revision but will likely alter the Fed's projections of labour market spare capacity that may shape the Summary of Economic Projections (SEP) to be released at the September meeting."
"In the last SEP release in June, which would have been based in part on the non-farm payrolls data that we now know was over-stating employment growth by an average of 68k per month, the unemployment rate was forecast to be at 4.0% in Q4 2024 and the core PCE inflation at 2.8% which we can now see is overdone. The core PCE inflation on Friday for July came in at 2.7% while the unemployment rate is already at 4.3%. Average hourly earnings growth for July fell to 3.6% YoY, close to the 3.5% roughly consistent with price stability. So, another weak print on Friday could see even bigger revisions to the SEPs on 18th September that could compel the FOMC to cut by 50bps. So, the jobs report on Friday will be crucial in shaping those expectations."
"Ahead of Friday we will get plenty of the other labour market indicators (ISM employment indices; JOLTS; Challenger; ADP) so those data points will shape expectations into the payrolls on Friday. If weaker than expected you would expect yields to drift lower to better price the risk of 50bps. Our bias this week is for the dollar to weaken back again given we see a bigger risk of a 50bp cut than currently implied by OIS pricing. Our payroll's forecasting model which uses the latest estimations of seasonal and trend components of the series, predicts surprise to the downside in the august payrolls report."
Created
: 2024.09.03
Last updated
: 2024.09.03
FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.
We hope you find this article useful. Any comments or suggestions will be greatly appreciated.
We are also looking for writers with extensive experience in forex and crypto to join us.
please contact us at [email protected].
Disclaimer:
All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.
The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.
Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy