Meeting minutes and labour market data revisions point to September rate cut

The minutes from the July FOMC meeting were released yesterday, with the details of the discussion confirming our long-held expectation that the Fed’s first interest rate cut in this cycle would come in September. The focus of committee members’ concerns has clearly started to turn more on the labour market than on inflation; even in July there were a number of officials who believed that a 25bps cut was appropriate at that meeting, and the data released since then has shown a further slowdown in labour market activity, in particular the last NFP report. The ‘vast majority’ off officials believed in July that a cut in September would be appropriate, and this conviction will likely have strengthened further in the time since then given the data already released.

The minutes also showed that ‘a majority’ of FOMC officials believed that jobs numbers through the year had been overstated, and this view was confirmed by the initial revision to Q1 jobs figures released yesterday, which saw the number of workers on payrolls downgraded by 818,000 for the year through March, in the largest revision since 2009. While this was somewhat lower than the 1mn revision which had been predicted in some quarters, it still means that the US jobs market had been weaker earlier than previously thought.

Japan’s manufacturing PMI index ticked up to 49.5 in August, still below the neutral 50.0 level but up from 49.1 in July. The services index rose to 54.0, from 53.7 previously, contributing to a composite reading of 53.0.

Today’s Economic Data and Events

9:00 India manufacturing PMI, August

11:15 France manufacturing PMI, August. Forecast: 44.5

11:30 Germany manufacturing PMI, August. Forecast: 43.3

12:00 Eurozone manufacturing PMI, August. Forecast: 45.8

16:30 US initial jobless claims, week to August 17. Forecast: 232,000

Fixed Income

• Treasuries rallied on rate cut bets yesterday, with the more sensitive shorter end seeing the larger falls in yield. The 2yr yield fell 5bps at the close to 3.9305%, while the 10yr was down just 1bps at 3.8010%.

FX

• The dollar index logged a fourth straight session of declines against its basket of peers yesterday, falling 0.4% on the day to its lowest close of 2024 as bets on Fed rate cuts strengthen.
• Both GBP and EUR rose to their highest levels of the year, with sterling up 0.4% to 1.3091, while EUR added 0.2% to 1.1150.
• JPY was little changed yesterday, closing at 145.21.

Equities

• US equity markets saw gains yesterday as the FOMC meeting minutes and labour market data bolstered the case for rate cuts. The Dow Jones, the S&P 500, and the NASDAQ added 0.1%, 0.4%, and 0.6% respectively. In Europe, the CAC and the DAX both closed 0.5% higher while the UK’s FTSE 100 added 0.1%.
• Locally, the ADX added 0.3% and the DFM 0.9%. Saudi Arabia’s Tadawul closed 0.7% higher.

Commodities

• Oil prices saw further declines yesterday, with Brent futures falling 1.5% to USD 76.1/b, levels last seen at the start of the year, while WTI dropped 2.9% to USD 71.9/b. With risk premia easing, concerns around demand from key economies such as China are to the fore.