Deutsche Bank with a note arguing that September marked a significant shift in the global rate-cutting cycle, highlighting the importance of the Federal Reserve's first rate cut. With the Federal Reserve now joining the trend, it was expected that other countries would follow suit, reflecting the influence of U.S. monetary policy.
DB go on to say that if market projections hold true, September may be the turning point where a gradual easing cycle becomes more aggressive, with many nations pricing in further rate cuts. (DB excuse notable exception, the Bank of Japan, which is expected to raise rates rather than cut in its next move).
Analysts at the bank do caveat that market pricing of rate cuts appears overly aggressive if neither a U.S. nor European recession materializes, but perhaps not aggressive enough if one does occur. Recent data from the U.S. Job Openings and Labor Turnover Survey (JOLTS) underscores the fragility of the labor market, showing low layoffs but also low hiring and the lowest quit rate in roughly a decade, aside from the early pandemic. This suggests to DB that the labor market is losing its tightness, and history says that once labor markets begin to weaken, it is difficult to reverse the trend. Despite relatively strong current U.S. data, the cycle is at a sensitive juncture.
The direction of global rate movements may hinge largely on the path of the U.S. labor market.
And thus, they conclude:
Next stop is US NF payrolls data on Friday.
