Slowdown in Job Market Boosts Hopes for a Fed Rate Cut

Slowdown in Job Market Boosts Hopes for a Fed Rate Cut: The latest monthly employment report
in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months
.

 

Content

Slowdown in the Job Market

Interest Rate Cuts

The Balancing Act at the Federal Reserve

Federal Reserve Chair’s Testimony

 

 

 

 

Slowdown in the Job Market Boosts Hopes for a Federal Reserve Rate Cut

– Federal Reserve Chair Powell’s testimony and inflation data will be closely watched this week.

– The employment report released on Friday showed that employers added fewer jobs
in June, and the unemployment rate rose to its highest since late 2021.

– The job market slowdown has bolstered expectations that the Federal Reserve will begin cutting interest rates starting in September.

– Federal Reserve Chair Powell’s testimony before Congress twice next week and the release
The initial readings on June inflation are expected to provide clues on the potential timing of interest rate cuts.

The latest monthly employment report in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months.

The U.S. Bureau of Labor Statistics said on Friday that employers added fewer jobs in June than the previous month,
and the unemployment rate rose to its highest level since late 2021.

The Bureau of Labor Statistics also revised the job growth figures for the previous two months downward,
indicating that the Federal Reserve’s high interest rate policy aimed
Slowing economic activity and taming inflation have had their intended effects.

Economists said in reports released on Friday, “Overall, the report aligns with the ongoing slowdown in growth and inflation.
Job gains are still not slowing as fast as expected, but the underlying pace is decelerating.”

 

Markets Betting on a September Rate Cut

Stocks rose, and Treasury yields fell following the release of the jobs data,
with increased optimism that the U.S. central bank might begin cutting the federal funds rate,
which is currently at its highest level in 23 years.

According to the CME Group’s FedWatch tool, which predicts interest rate movements based on federal funds futures trading data,
traders are pricing in a 77% chance that the Federal Reserve will cut benchmark interest rates
at the Federal Open Market Committee meeting in September.
This compares to a 64% probability priced in a week earlier.

According to recent data, the June jobs report adds to evidence
from other recent growth indicators suggesting the Federal Reserve is tight enough.
Therefore, this data strengthens the likelihood of a rate cut in September,
although this outcome requires continued evidence of moderated inflation in the coming months.

 

 

 

The Balancing Act at the Federal Reserve

Federal Reserve officials have said progress is being made in combating inflation,
but they also stated that they need to see more data confirming that price pressures are under control.

Federal Reserve Chair Jerome Powell said last Tuesday during a discussion at a European Central Bank conference in Portugal:
“We want to be more confident that inflation is moving sustainably toward the
(Federal Reserve’s annual target) of 2% before we start the process of reducing the extent of our policy tightening.”

The latest reading of the Federal Reserve’s preferred inflation measure,
the Personal Consumption Expenditures Index, showed that inflation in the twelve months ending in May slowed to 2.6%.

Federal Reserve officials fear moving too quickly to cut interest rates and risking reigniting inflation.
At the same time, they are closely monitoring labor market trends
to ensure that high interest rates are not causing harm.
The Federal Reserve has a dual mandate of maintaining price stability and promoting maximum employment.

Powell said last week: “We have to balance the two,
and given the strength of the economy, we can handle this carefully.”

 

Federal Reserve Chair’s Testimony and June Inflation Data Approaching

Powell will provide an overview of current economic conditions before
the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.

Lawmakers are likely to press Powell on the impact of high interest rates
on the economy and the timeline for reducing the federal funds rate,
which affects the costs of everything from mortgages to student loans.

Gold Rises Amid Hopes of Interest Rate Cuts by the Federal Reserve

Gold Rises Amid Hopes of Interest Rate Cuts by the Federal Reserve: Gold rose to around $2360 per ounce, nearing its highest level in four weeks,
after new U.S. economic data bolstered expectations of the Federal Reserve cutting interest rates.

 

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Slowdown in the Construction Sector Growth in the UK

Unemployment Rate in Switzerland Higher than Expected

Gold Rises 

 

 

 

Slowdown in the Construction Sector Growth in the UK

The UK’s global construction sector PMI from Standard & Poor’s fell to 52.2in June 2024 from 54.7 in May,
below the forecast of 53.6.
This indicates an increase in construction activity for the fourth consecutive month but at a slower pace.
The main growth driver continued to be commercial activity, which increased significantly.
Civil engineering activity also increased slowly,
while housing activity returned to contraction after the first increase in 19 months in May.
New orders grew slower, sometimes linked to election uncertainty, but the pace of job creation rebounded.
Meanwhile, the rate of input cost inflation accelerated from May but remained subdued.

 

Unemployment Rate in Switzerland Higher than Expected

Switzerland’s unemployment rate was 2.3% unadjusted seasonally in June 2024,
unchanged from the previous two months and slightly above market expectations of 2.2%.
The number of unemployed decreased by 947 from the previous month to 104,518.
Meanwhile, the youth unemployment rate, which measures job seekers between the ages of 15 and 24,
remained unchanged at 2.0%, with the number of unemployed youth rising by 24 to 8,948.
The number of reported job vacancies decreased by 513 to 39,592 during the month.
After seasonal adjustments, the unemployment rate was 2.4% in June.

 

 

 

Gold Rises Amid Hopes of Interest Rate Cuts by the Federal Reserve

Gold rose to around $2360 per ounce, nearing its highest levels in four weeks
after new U.S. economic data bolstered the Federal Reserve’s expectations of interest rate cuts.
Federal Reserve officials pointed to a slowdown in the U.S. economy
in their meeting yesterday but recommended a cautious approach before deciding on interest rate cuts,
according to the minutes of the latest FOMC meeting.
Safe-haven demand for the yellow metal was also boosted by escalating tensions
in the Middle East after reports indicated that the Israeli entity killed a senior Hezbollah leader,
prompting Hezbollah to respond near the border.

 

Gold Rises Amid Hopes of Interest Rate Cuts by the Federal Reserve

Gold Prices Drop in the Asian Markets

Gold Prices Drop in the Asian Markets: In Wednesday’s trading, gold prices slightly decreased in the Asian markets,
adding to the losses incurred in the previous session.
Traders’ significant shift toward the dollar caused this decrease,
as they awaited the release of key U.S. inflation data.


Content
Gold Prices Drop

Oil Prices Rise

Federal Reserve  

 

Gold Prices Drop 

In Wednesday’s trading, gold prices slightly decreased in the Asian markets,
adding to the losses incurred in the previous session.
Traders’ significant shift toward the dollar caused this decrease,
as they awaited the release of key U.S. inflation data.

Gold prices continued to trade within the low range of $2,300 per ounce, formed during most of June.
This is attributed to the expectations of rising U.S. interest rates, which affected price forecasts.

At the end of trading, spot gold fell by 0.1% to $2,317.02 per ounce,
while gold futures for August delivery decreased by 0.1% to $2,328.40 per ounce.

 

Oil Prices Rise

Oil prices rose during Asian trading on Wednesday despite a sudden increase in U.S. oil inventories.
This rise is attributed to geopolitical risks arising from conflicts in the Middle East
and expectations of inventory declines during the peak demand season in the third quarter.

Geopolitical risks are increasing due to Houthi attacks in the Red Sea and escalating
hostilities between Israel and Hezbollah in Lebanon, leading to rising oil prices.

Crude oil futures rose during Wednesday’s Asian session.
According to the New York Mercantile Exchange,
August delivery futures were trading at $81.19 per barrel at the time of reporting, an increase of 0.45%.

 

 

 

Federal Reserve Member’s Remarks on Interest Rates:

In her speech on Tuesday during the economic conference in New York, Lisa Cook,
a member of the Board of Governors of the U.S. Federal Reserve, stated
that the central bank will continue its efforts to curb inflation despite the volatile start to 2024,
which saw an acceleration in inflation growth during the first quarter.

Cook added in her remarks that lower interest rates would be appropriate later.
The current monetary policy is well-positioned in line with economic expectations.
Rising inflation expectations will require the Federal Reserve to continue its tight policy for longer.

 

 

Gold Prices Drop in the Asian Markets

Continuation of Yen Decline

Continuation of Yen Decline: The Japanese yen continued its losses in the Asian market on Monday, declining against a basket of global currencies.
It extended its decline for the eighth consecutive day against the US dollar, reaching its lowest level in two months.
This is due to the Bank of Japan’s recent decision to postpone reducing bond purchase incentives until its July meeting.

 

Content
Continuation of Yen Decline
Australian Dollar Outperformance
Federal Reserve

 


Continuation of Yen Decline

The yen is nearing trading below the 160 yen per dollar barrier,
which the Bank of Japan considers the red line for intervention in the foreign exchange
market to protect the local currency from excessive depreciation.

Currently, a summary of the opinions expressed at the Bank of Japan’s monetary policy meeting this month is curbing yen losses.
Some policymakers called for raising interest rates at the appropriate time, seeing the risk of inflation exceeding set expectations.

 

Australian Dollar Outperformance

The Australian dollar outperformed most major and minor currencies in the foreign exchange market last week,
thanks to the Reserve Bank of Australia’s policy and the reduced likelihood of a rate cut this year.
The Australian dollar was considered an excellent investment opportunity, witnessing increased purchases,
especially with the diminished likelihood of a rate cut in the Australian economy this year.

The Reserve Bank of Australia decided to keep interest rates unchanged for the fifth consecutive time,
warning of reasons to remain vigilant against inflation risks.
This development pushed the markets to reduce the likelihood of a rate cut this year.

 

 

 

Remarks by Some Federal Reserve Members on Interest Rates

Last Friday, former Federal Reserve member James Bullard announced
His expectation was that the pace of interest rate cuts by the Federal Open Market Committee would be slow,
pointing to the continued strength of the US economy.

Earlier, Federal Reserve member Adriana Kugler stated that if the US economy develops as expected,
The Fed will likely ease its monetary policy later this year.
She added that the latest inflation data were encouraging despite the continued rise in inflation rates.

Kugler noted that the US monetary policy remains sufficiently restrictive and that the economy is heading in the right direction.
She expressed optimism about improving supply and indicated that weakened demand would support the continued decline in inflation rates.

Continuation of Yen Decline

Federal Reserve Meeting

Federal Reserve Meeting: Investors are anticipating May’s Federal Reserve meeting and the Consumer Price Index (CPI) inflation data.

 

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Details

Monetary Policy Committee

 

 

 

Details

The Federal Reserve is expected to keep interest rates steady this week,
focusing on officials’ expectations regarding the timing of potential cuts and the economic trajectory.

The CPI report will show whether inflation continues to slow down after rising earlier this year.

While the Bank of Canada and the European Central Bank cut interest rates last week,
the Federal Reserve is not expected to follow suit when it meets this week.

On Wednesday, the central bank will announce its interest rate decision,
and it is expected to keep rates at the current level of 5.25% – 5.5%.

However, market watchers are expected to gain much information
this week about when the Fed might proceed with its rate cuts independently.

 

 

Monetary Policy Committee

The Federal Reserve’s Monetary Policy Committee will also issue a summary of economic projections.

These projections include the closely watched “dot plot,”
which shows the Federal Open Market Committee (FOMC) members’ expectations for the path of interest rates.

Wednesday will be a busy day for economic data. The May CPI will be released in the morning before the Fed’s interest rate announcement.

Market watchers will study the latest version of the CPI inflation report after April data showed inflation falling to 3.4%.
This report gave investors and consumers hope that prices might have started to retreat after rising earlier this year.
Fed officials have said they need to see more data showing price declines before moving to cut rates.

On Thursday, the Producer Price Index (PPI) will show the inflation path for wholesalers,
which is sometimes seen as a precursor to consumer price pressures.
Investors will also receive data on consumer sentiment on Friday, which will provide further information on spending trends and inflation expectations.

 

Federal Reserve Meeting

Inflation and Bond Movements

Inflation and Bond Movements: Predicting the U.S. bond market in 2024 remains challenging as Treasury yields have reached the highest levels in four weeks.
Despite this, UBS strategists expect bond yields to decline by the end of the year due to broad economic factors.

 

Content

Gold Prices Decline

Inflation and U.S. Bond Movements

Natural Gas Price Increase

 

 

 

Gold Prices Decline

Gold prices faced downward pressure during Friday’s trading session due to the rise in U.S. 10-year Treasury yields,
which increased by 0.15% to around 4.559%.
This has made bond investment more attractive than gold, affecting gold’s performance in the current session.

Statements from U.S. Federal Reserve members also impacted gold trading.
They indicated it is too early to consider lowering interest rates and that the labor market remains strong.
This supports rising inflation expectations in the U.S. and suggests that the Fed will unlikely lower rates soon.
Consequently, tight monetary policy is expected to persist for a prolonged period,
negatively affecting gold’s performance in the current trading session.

 

Inflation and U.S. Bond Movements

Predicting the U.S. bond market in 2024 remains challenging, as Treasury yields have reached their highest levels in four weeks.
Despite this, UBS strategists expect bond yields to decline by the end of the year due to broad economic factors.

U.S. inflation is a significant factor influencing bond yields.
According to the latest report from the Federal Housing Finance Agency, U.S. home prices rose by 0.1%
In March, compared to the previous month, there was a marginal increase lower than the 1.2% rise in February.
Yearly, prices increased by 6.7% in March, down from the 7.1% increase in February.

 

 

 

Natural Gas Price Increase

Natural gas futures rose during Friday’s trading session in the U.S. According to the New York Mercantile Exchange,
July natural gas futures traded at $2.62 per million British thermal units, an increase of 1.87%. 

Previously, natural gas futures traded at a high of $2.62 per million British thermal units.
Natural gas may find support at $2.417 and resistance at $2.853.

The U.S. Dollar Index, which measures the performance of the U.S. dollar against a basket of six other major currencies,
fell by 0.06% to trade at 104.60. Meanwhile, July crude oil prices dropped by 0.78% on the NYMEX platform,
trading at $77.30 per barrel. Heating oil prices for July rose by 0.19%, trading at $2.39 per gallon..

 

 

Inflation and Bond Movements

 

Fed Minutes Show Agreement on Prolonged Higher Interest Rates

Fed Minutes Show Agreement on Prolonged Higher Interest Rates:
Federal Reserve officials agreed earlier this month to keep interest rates higher for longer,
Many question whether monetary policy was tight enough to bring inflation down to its target.

 

 Contents
Federal Open Market Committee Meeting
 Interest Rates
Monetary Policy

 

 

 

Federal Open Market Committee Meeting

The minutes of the two-day Federal Open Market Committee (FOMC) meeting,
which concluded on May 1,
revealed that while participants believed monetary policy was “well positioned,”
several officials expressed a desire to tighten it further if necessary.

“Participants noted disappointing inflation readings during the first quarter,”

according to the minutes released Wednesday in Washington.
The minutes indicated,
“It will take longer than previously expected to gain greater
confidence that inflation is moving sustainably towards 2%.”

 

Interest Rates

Keeping interest rates higher for a longer period:
The minutes also stated that officials discussed maintaining interest rates
At their current levels, for a longer time
“if inflation does not show signs of moving sustainably towards 2%,
or reducing monetary policy restrictions if there is an unexpected weakening in labor market conditions.”

Following the rise in inflation in the first quarter,
Federal Reserve officials said they would keep interest rates
at their highest level in 23 years for longer than initially anticipated.

Federal Reserve Chair Jerome Powell stated in his May 1
Press conference that lowering borrowing costs would not be appropriate
until the central bank has greater confidence that inflation is moving sustainably towards its 2% target.

He reiterated at an event in Amsterdam on May 14,
“We will need to be patient and allow restrictive policy to do its work.”

Is Monetary Policy Restrictive Enough?

Although officials generally considered monetary policy restrictive,
policymakers noted that higher interest rates might have
less impact than in the past, and the neutral long-term rate could be higher than previously thought.

The minutes noted, “Many participants commented on their uncertainty
regarding the extent of the policy’s restrictiveness.”

Since the Federal Reserve meeting,
April’s consumer price data showed a modest inflation slowdown
after three months of higher-than-expected figures.
While price growth remains above the Federal Reserve’s target,
recent figures have alleviated some concerns about a resurgence in inflation.

The economy continues to grow at a robust pace,
although recent reports on retail sales and manufacturing indicate a decline in demand.
The labor market remains resilient but also shows signs of slowing down.
Job growth in April was the slowest in six months.

 

Fed Minutes Show Agreement on Prolonged Higher Interest Rates

US Interest Rate Expectations

US Interest Rate Expectations: Traders’ doubts have increased about the Federal Reserve implementing two rate cuts
after they expected it last week following moderate inflation data in the US for April.

 

Content:

Delayed Interest Rate Cuts

US Interest Rate Expectations

Global Monetary Policy Easing

 

 

 

 

Delayed Interest Rate Cuts

As Goldman Sachs forecasts, the strength of the US dollar might persist longer if the Federal Reserve
keeps interest rates at their current levels while other countries choose to reduce borrowing costs.

Strategists at Goldman Sachs wrote,
“If the Fed keeps the interest rate unchanged, but other regions decide to ease

their local monetary policy instead of waiting for the US central bank,
the divergence in monetary policies is likely to result in the prolonged strength of the dollar.”
These experts expect interest rate cuts in June in Canada, the UK, and the Eurozone.

Since the beginning of this year, the US dollar has risen against all its G10 peers.
The Bloomberg Dollar Spot Index, which tracks the strength of the US currency, has increased by about 3%.

 

US Interest Rate Expectations

Traders’ doubts have increased about the Federal Reserve implementing two
rate cuts after they expected it last week following moderate inflation data in the US for April.

The swap market anticipates US interest rate cuts of about 40 basis points by the end of 2024,
with the first full 25 basis point cut expected at the upcoming monetary policymakers’ meeting in November.

Federal Reserve governor Christopher Waller indicated yesterday

that a consistent decline in US data over the next three to five months would allow the
central bank to consider lowering borrowing costs by the end of 2024.

 

 

 

 

Global Monetary Policy Easing
European Central Bank President Christine Lagarde indicated that
an interest rate cut will not be ruled out next month,
as the rapid increases in the region’s inflation index have been largely curbed.

Analysts wrote, “When the divergence in macroeconomic
factors and potential monetary policies was more pronounced,
policymakers closely monitored shifts in the US Federal Reserve to limit currency volatility.”

They pointed out that if central banks worldwide start easing
“relatively early and more strongly” than the Federal Reserve, it could help the US achieve its inflation target.

 

US Interest Rate Expectations

Anticipation for Inflation Data, Fed May Keep Rates High for Longer

Anticipation for Inflation Data, Fed May Keep Rates High for Longer:
Federal Reserve officials stated they would not lower the key federal funds rate

This influences borrowing costs for all types of loans until inflation strongly trends down to 2%.
If early forecasts are correct, inflation will remain higher than Federal Reserve officials would like in April.

Content
Consumer Price Index Increase

Stable Inflation

Federal Reserve

 

 

 

 

Consumer Price Index Increase

The cost of living, as measured by the Consumer Price Index (CPI), is likely to rise by 3.4% year-over-year in April,
down from a 3.5% increase in March, according to a survey of forecasters conducted by Dow Jones Newswires and The Wall Street Journal,
ahead of the official numbers set to be released by the Bureau of Labor Statistics on Wednesday.
The “nowcast” prediction by the Cleveland Fed, which forecasts the CPI based on incoming economic data,
also called for a 3.5% annual increase as of Monday.

Prices rose faster than expected in the first three months of the year,
indicating a halt in the progress against inflation—which had significantly declined last year.

 

Stable Inflation

High inflation has been tough on household budgets because of higher prices like gas and groceries.
It forced the Federal Reserve to delay cutting its benchmark interest rate,
keeping rates high for all types of borrowing, like mortgages and credit cards.

 

 

 

Federal Reserve

The Federal Reserve might get the data it wants, but very slowly.
Officials said they are waiting for signs that inflation is on a strong downward trajectory before considering
lowering the federal funds rate from its highest level in 23 years, where it has been since last July.

However, core inflation, which excludes the volatile prices of food and energy and is closely
watched by economists as an indicator of overall inflation trends, is likely to rise by 0.3% for the month
if the agreed estimates are correct, down from 0.4% in March.

Economists found a reason for optimism in used car auctions, where wholesale prices dropped by 2.3% in April,
compared to a 14% year-over-year decline, according to data provider Manheim.
Used car prices make up a significant portion of overall inflation.
However, changes in wholesale used car prices typically affect inflation data with a few months’ delay.

 

 

Anticipation for Inflation Data, Fed May Keep Rates High for Longer

Consumer Price Index report will clarify whether the inflation path is still rugged

 Consumer Price Index report will reveal whether inflation remains rugged: This week, investors will discover whether Wednesday’s release
of the Consumer Price Index will show the persistence of price pressures. Will inflation face another “bump” along the way?

 

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Details

Federal Reserve

 

Details

After 2023 saw a decline in inflation rates, 2024 showed that prices appeared “steady,”
with inflation rates tending to rise again over the past few months.
This includes the annual inflation rate for the Consumer Price Index at 3.5% in March,
which has risen for the third consecutive month. Before that, the Producer Price Index data will be released on Tuesday,
showing price changes for wholesalers, which can be an indicator of upcoming price changes at the consumer level.

Some Federal Reserve officials have described the recent rise in inflation rates as “rugged,”
considering the spike in prices as a signal of the necessity

to keep interest rates at their current high levels for decades.
Another high inflation reading could weaken hopes for a cut in interest rates.

 

 

 

 

Federal Reserve

officials from the Federal Reserve have expressed the need to be cautious before cutting interest rates.
Federal Reserve Governor Michelle Bowman stated she does not expect cutting interest rates in 2024 would be appropriate,
while Dallas Federal Reserve President Lorie Logan said it is still too early to consider reducing interest rates.
Meanwhile, data released on Friday pointed to a jump in consumer inflation expectations,
although the sharp decline in American consumer confidence added to the evidence that the economy is losing momentum.
The markets are still pricing in September as the start of the easing cycle.

Investors will also hear from several Federal Reserve officials this week, including Governor Jerome Powell,
who will speak to the Foreign Bankers’ Association in the Netherlands on Tuesday.
Federal Reserve Vice Chair Philip Jefferson, Cleveland Federal Reserve President Loretta Mester,
Atlanta Federal Reserve President Raphael Bostic,
and Philadelphia Federal Reserve President Patrick Harker is also on the calendar this week.

 

Consumer Price Index report will reveal if inflation remains rugged.