Societe Generale: US non-farm payrolls lower than expected, but the market has reason to reduce bets on a 50 basis point rate cut
BNP Paribas stated that despite the lower-than-expected growth in the US August employment report, the market has reduced expectations of a 50 basis point rate cut, believing that the Federal Reserve will not take drastic easing measures. CME data shows a 27% probability of a 50 basis point rate cut in September. Chief FX strategist Kit Juckes pointed out that the US dollar is strengthening, while currencies sensitive to economic growth remain weak. The upcoming release of the Consumer Price Index (CPI) data will further impact market expectations
According to CNBC, after the release of the US August non-farm payrolls report, the possibility of the Federal Reserve cutting interest rates by 50 basis points this month increased but then receded, indicating that traders believe the Fed has little intention of making significant rate cuts at the start of an easing cycle. Societe Generale stated that job growth was below expectations but not catastrophic, with wage growth showing a slight rebound. Undoubtedly, the US economy is slowing down, but there is no reason to call it a 'hard landing'.
According to the CME FedWatch Tool on Monday, the probability of a 50 basis point rate cut by the Fed in September is 27%, while the probability of a 25 basis point cut is 73%. In comparison, following the mixed August jobs report last week, the probability jumped from around 40% on Thursday to about 50% on Friday.
Kit Juckes, Chief FX Strategist at Societe Generale, stated in a report on Monday: "The market is giving up on the idea of a 50 basis point Fed cut. Rate traders are against this idea." He noted that these actions have led to a stronger US dollar, while currencies sensitive to economic growth remain "persistently weak".
Juckes said: "It's really hard for most people to believe that the Fed will cut rates by 50 basis points this month based on the US jobs data. Job growth was below expectations but not catastrophic, with wage growth showing a slight rebound. Undoubtedly, the US economy is slowing down, but there is no reason to call it a 'hard landing'."
The US August Consumer Price Index (CPI) is set to be released on Wednesday. Economists generally expect the core CPI to rise by 0.2% month-on-month, with the year-on-year core CPI increasing from 3.2% to 3.1%. The overall CPI is expected to grow by 0.2% month-on-month, with the year-on-year increase expected to drop from 2.9% to 2.6%.
Juckes stated: "We'll see if the CPI data changes anything, but we need a 0.1% monthly increase in core CPI to shake the market."