“Inflation is relatively calm, which gives the Fed the flexibility to focus more on stemming ongoing weakness in the labor market,” said Skyler Weinand at Regan Capital. “We expect the Fed to cut 25 basis points next week and to follow through with another two 25 basis-point cuts this year.”
Treasuries broadly held on to gains made on Thursday when the US 10-year yield fell two basis points. Australian and New Zealand yields fell Friday, echoing the move. Bloomberg’s index of the dollar was steady. Gold stabilized after a small Thursday decline after eclipsing its inflation-adjusted peak set in 1980.
In Asia, data on the docket for release includes industrial production for Japan and inflation for India. Money supply and new loans data for China may be released any time through Sept. 15.
In China, investors will be closely watching the Hong Kong-listed shares in Alibaba Group Holdings Ltd. after the company’s US-listed depositary receipts rallied 8% Thursday.
Elsewhere, oil fell for a second day as a worsening market outlook undercut concerns about potential geopolitical disruptions to supplies.
US Rate Cuts
A slowing US jobs market has prompted markets to price a more aggressive trajectory of policy easing. Swaps pricing indicates traders anticipate the equivalent of between two or three 25 basis point cuts through year-end.
“Right now, inflation is a key subplot, but the labor market is still the main story,” said Ellen Zentner at Morgan Stanley Wealth Management. Thursday’s “CPI may appear to offset yesterday’s PPI, but it wasn’t hot enough to distract the Fed from the softening jobs picture. That translates into a rate cut next week — and, likely, more to come.”
While there may be some murmurs within the Fed about the need for a 50 basis-point cut, an emergency-sized reduction is not required, said Seema Shah at Principal Asset Management. Jobless claims are still quite low compared to 2021 levels, while the broader economic activity data and earnings reports do not signal the US is approaching a recessionary tipping point.