Likelihood Rises that Both the Fed and ECB Will Cut Interest Rates Next Month – Currency Thoughts
Likelihood Rises that Both the Fed and ECB Will Cut Interest Rates Next Month
August 22, 2024
A sizably large downward benchmark revision of U.S. jobs growth between March 2023 and March 2024 is the latest news to solidify the probability that the Fed will start cutting interest rates in September. Investors look to Chairman Powell’s speech tomorrow for additional clarity about the speed of rate reductions thereafter.
At the same time, a large deceleration in negotiated wage growth in the euro area has been reported. At 3.55% year-on-year in the second quarter, such was down 4.79% in the first quarter and the smallest increase since 3.09% in the final quarter of 2022. The next lowest figure in the interim was 4.32% in the initial quarter of 2023. Moreover, preliminary Euroland PMI results for August aside from a distorted spike in French service sector activity related to the Olympics also paves the way for a second rate cut by the European Central Bank next month.
The dollar has been well-bid today, climbing so far by 1.1% against the Mexican peso, 0.8% versus the Japanese yen and 0.3% to more than 1.110 per euro.
Stock markets in the Pacific Rim closed up 1.4% in Hong Kong and 0.7% in Japan but 0.3% softer in China. Major U.S. equity indices are in the black, and so are key markets in Europe. This has been associated with a rise in ten-year sovereign debt yields of six basis points in Germany and the U.K. and five bps in the United States.
Bitcoin and gold prices are down 0.9% and 1.0%, but oil has climbed by 0.7% overnight.
A dip in Euroland’s manufacturing purchasing managers index to an 8-month low of 45.6 in August according to preliminary figures is more indicative to the state of that economy than than the one-point rise of the composite PMI.
Euroland’s service sector PMI rose 1.4 points to a 4-month high of 53.3, thanks to a 4.9-point upsurge in the French service sector PMI that printed at a 27-month peak of 55.0. The German services PMI printed at a 3-month low of 51.4 but also showed lessening business costs, and the German manufacturing PMI score remained very depressed at 42.1.
The U.S. S&P Global manufacturing PMI fell 1.6 points in August to an 8-month low of 48.0, overshadowing a 0.2-point uptick in the services index. Manufacturing production contracted at the quickest pace in 14 months.
The British preliminary PMI results including 4-month highs in the composite and service sector scores, and a 26-month manufacturing peak.
In separate and mixed other U.S. economic news this Thursday, new jobless insurance claims rose 4k last week to 232k, but existing home sales in July posted their first month-on-month increase since February.
The acceptance speech last night by Minnesota Governor Walz to be the Dem’s nominee for Vice President was received with great enthusiasm by DNC convention attendees and most pundits, striking a stark contrast with the controversial vibes surrounding JD Vance, his Republican opponent.
India’s composite purchasing managers index dipped 0.2 points to a still dynamic reading of 60.5.
Japan’s composite, services and factory PMI scores in August climbed to a 15-month high of 53.0, powered by improvement in both manufacturing and services.
Likewise, Australia’s composite, services and manufacturing PMIs were each at 3-month highs.
Two-month highs in consumer confidence were reported today in Turkey and Belgium, while consumer sentiment is Denmark slid to a 4-month low.
The orders component of the monthly British industrial trends survey rose ten points but, at -22, printed below zero (that is exuding an negative overall mood, for the 25th straight month.
Norwegian GDP expanded 1.4% on quarter and by 4.2% on year (most since the second quarter of 2022).
Malaysian CPI inflation stayed at 2.0% for a third straight month in July.
Consumer confidence in the euro area was unexpectedly a touch worse in August than in July.
The Bank of Korea‘s base interest rate was left unchanged at 3.5% as expected. That’s been its level since a 25-basis point increase in the first month of 2023 that culminated three percentage points of tightening begun in August 2021.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Korea, preliminary August purchasing manager survey results
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