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Investors are eagerly anticipating the Kansas City Federal Reserve’s Economic Policy Symposium at Jackson Hole on August 22-24 to gain insights into the timing of US rate cuts, amidst recent fluctuations in economic data.
Following a significantly weaker US payrolls report earlier in August, concerns about a recession arose, leading to increased expectations of imminent rate cuts and causing a global market downturn.
However, subsequent data, including milder inflation figures and a robust retail sales report, have tempered expectations of a substantial 0.5 percentage point cut in September and alleviated worries about the economy’s health.
“We believe that the Fed is likely to indicate at Jackson Hole that a cut is probable at the next meeting, assuming inflation progress remains steady,” said Mark Cabana, head of US rates strategy at Bank of America.
He added that the magnitude of the cut and the pace of future cuts will be contingent on economic indicators.
“Therefore, we do not anticipate the Fed ruling out the possibility of larger cuts if deemed necessary — but it is unlikely to provide clear signals that such actions are imminent,” he noted.
The next Fed interest rate decision is scheduled for September 18. Market expectations currently project between three and four quarter-point cuts this year from the current range of 5.25 to 5.5 percent, the highest level in 23 years. Harriet Clarfelt
When will China reduce interest rates again?
Few economists anticipate the People’s Bank of China to lower benchmark lending rates on Tuesday, despite grappling with a slowdown in growth and decreased consumer confidence in the world’s largest economy.
The People’s Bank of China surprised markets last month with rate cuts following the Third Plenum — the Communist party’s key policy meeting — to meet the country’s 5 percent annual growth target. Central bank governor Pan Gongsheng has signaled a shift towards the short-term seven-day reverse repo rate as the new benchmark for interest rates.
Ju Wang, head of greater China FX and rates strategy at BNP Paribas, is among those not predicting a cut. “We anticipate the loan prime rate, the benchmark for corporate and household loans, to move in conjunction with the next rate cut, likely in Q4,” she stated.
“We foresee the PBoC adopting a small and gradual approach to interest rate cuts” and reducing the reverse repo rate by 0.25 percentage points in the second half of the year, she added.
Wang highlighted the importance of currency stability, referring to the impact of a Bank of Japan rate hike last month, which caused the yen to surge against the dollar and forced traders who borrowed in yen to purchase higher-yielding assets to unwind their positions.
The PBoC’s decision comes as Chinese policymakers work to establish a floor for long-dated bond yields to prevent a bond market bubble and banking crisis, as well as to avert the deflationary implications of a prolonged bond rally. Authorities recently exposed certain purchasers of government debt.
Is Eurozone business activity contracting?
Investors concerned about the Eurozone’s economic health are awaiting business activity survey data next week for insights.
Most economists anticipate the S&P Global purchasing managers’ index to remain above the critical 50 level, indicating growth from the previous month.
Last month, the index fell below expectations to a five-month low of 50.1. While a Bloomberg poll of economists expects it to stay at this level, economists surveyed by Reuters predict a slight increase to 50.3. A divergence between manufacturing and the larger services sector is expected to persist.
Pressure has mounted on the European Central Bank to cut interest rates in September following collapsing investor expectations in the bloc’s economy as shown by the ZEW Indicator of Economic Sentiment.
Tomasz Wieladek, European economist at T Rowe Price, suggested that recent financial market upheavals likely influenced survey results. He believes that the composite PMI will once again fall below expectations and dip below 50 this time.
However, he stated: “I believe this weakness will be temporary. As long as sentiment continues to improve, the sentiment effect will likely reverse, leading to improved PMIs.”
Regarding the ECB’s considerations, Wieladek noted, “They will place more emphasis on services. They need prices to decrease, which will give them more confidence in disinflation in the services sector and facilitate a rate cut in September.” Emily Herbert
following sentence in a different way:
Original: “The students were excited about the upcoming field trip to the museum.”
Rewritten: “Anticipation filled the students as they looked forward to the museum field trip.”