Markets Steady Ahead of a Quiet Data Day

August 27, 2024

Markets Steady Ahead of a Quiet Data Day

  • Powell’s dovish policy guidance should continue to support risk assets and weigh on Treasury yields.
  • USD will remain under broad downside pressure until we get top-line data that confirms the US labor market is adjusting smoothly.
  • National Bank of Hungary is expected to keep rates steady at 6.75%.

Please see our Drivers for the Week Ahead for an in-depth look at what markets are facing this week.

USD is mixed just above the lows triggered by Fed Chair Powell’s dovish speech last Friday. Powell seemed to support money market pricing for 100bps of Fed funds rate cuts by year-end, warning that the slowdown in the labor market was “unmistakable” and “we do not seek or welcome further cooling in labor market conditions.”

Yesterday, San Francisco Fed President Mary Daly (FOMC voter) echoed Powell’s policy guidance that “the time to adjust policy is upon us” to “prevent injuring the labor market”. But Daly also cautioned it was “too early to know” the pace of coming rate cuts as she’s not yet seeing signs of “real weakness” in the labor market. Daly added she did not want to declare the Fed was on a path to neutral, which she estimates is as high as 1% inflation-adjusted (3% in nominal terms).

In our view, the soft landing in US labor market condition suggests interest rate reductions implied by Fed funds futures over the next several months have gone too far. The JOLTS layoff rate dipped to 0.9% in June, matching the April 2022 low, indicating firms are managing headcount through attrition rather than layoffs. Moreover, the job vacancy rate is near pre-pandemic levels at 4.9% and above the 4.5% threshold that typically signals a worrisome rise in the unemployment rate.

Bottom line: USD will remain under broad downside pressure until we get top-line data that confirms the US labor market is adjusting smoothly. The July JOLTS and August non-farm payrolls prints are due next week.

US data highlight today is the August Conference Board consumer confidence report (3:00pm London). Consumer confidence is expected at 100.9 vs. 100.3 in July and would remain roughly within the same narrow range that’s held throughout the past two years. Regardless, positive real wage growth, rising house prices, and encouraging labour demand suggest household spending will remain an important tailwind to GDP growth. Other US data today include June house prices (2:00pm London), Richmond Fed activity index (3:00pm London), and Dallas Fed services activity index (3:30pm London).

EUR/USD is consolidating near recent highs slightly under 1.1200 and the yield premium on French 10-year government bonds versus comparable German bunds remains contained. French President Emmanuel Macron ruled out a leftwing led government as discussion to appoint a new prime minister continues today. Macron is looking to form a government composed of moderate “republican forces” ranging from the centre-left to the right. ECB Governing Council members Klaas Knot (11:45am London) and Joachim Nagel (3:00pm London) speak today.

GBP is firmer versus USD and EUR. UK inflation pressures are easing sharply. The UK BRC shop price index was flat in August to be down -0.3% y/y, the first annual decline in nearly three years. But the pick-up in UK economic activity suggests the BOE is unlikely to slash the policy rate by more than is currently priced-in by year-end (roughly 50bps). The CBI August retailing reported sales is up next (11:00am London).

National Bank of Hungary meets today and is expected to keep rates steady at 6.75% (1:00pm London). Less than a third of the analysts polled by Bloomberg look for a 25bps cut to 6.50%. At the last meeting July 23, the bank cut rates 25bps and Deputy Governor Virag said market bets for one or two more cuts this year were “realistic.” Since that meeting, July CPI came in at 4.1% y/y, the highest since December and back above the 2-4% target range and so a hold this week seems warranted. The swaps market is pricing in 100bps of easing over the next 12 months.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image ↻

Type in the word seen on the picture

I am a current investor in another jurisdiction

1 of 2

2 of 2