- US July ISM manufacturing index 46.8 vs 48.8 expected
- US initial jobless claims 249K vs 236K estimate
- July US S&P Global manufacturing PMI 49.6 vs 49.5 prelim
- Atlanta Fed GDPNow Q3 estimate to 2.5% vs 2.8% prior
- Bank of England Bailey: Would caution against you that BOE would cut rates continually
- BOE Pill: We are not committing to further interest rate cuts
- US construction spending for June -0.3% versus 0.2% estimate
- Canada S&P Global July manufacturing PMI 47.8 vs 49.3 prior
- OPEC+ JMMC: Phase-out of volume reductions could be paused or reversed
- US Q2 unit labor costs +0.9% vs +1.8% expected
Markets:
- Gold down $5 to $2442
- US 10-year yields down 12.9 bps to 3.97%
- WTI crude oil down $1.02 to $76.88
- S&P 500 down 1.4%, Nasdaq down 2.3%
- CHF leads, GBP lags
The bond market is sniffing out trouble. How much of that is trouble in the economy and how much is trouble in the Middle East is debatable but levels continue to fall with 3s through 10s taking out 4% today. US 2s also fell 18 bps to 4.15% which is a far cry from Fed funds around 5.38% and no meeting for six weeks. To break even rather than roll t-bills, you're going to need to see some heavy Fed cuts and that's what's steadily happening with 173 bps priced through June 2025 and a 28% (!) chance of 50 bps in September.
That all sounds aggressive but it's tough to fade with bombs about to fly in the Middle East and non-farm payrolls coming on Friday. The temptation will be to buy dollars and sell bonds on any number that's not bad.
Elsewhere, the pound was beaten up after an initial pop on the rate cut. I take that more as a sign of the risk trade than the rate trade, though perhaps the market thinks the BOE will fall behind the curve with Bailey warning against pricing in consistent cuts.
When you zoom out and look at the market, there are cracks in virtually every major economy and inflation increasingly looks dead, but there's no real compelling weakness. However, I think the signal is that all the economic noise is weakness in all of the major economies and that's been enough, particularly for the bond market.
USD/CAD is in an interesting spot as it tries the 1.39 top that it's flirted with three different times in the past three years. The Aussie also resumed its decline after a week of trying to steady the ship.
Some were surprised that the yen didn't perform better today given the risk environment but I take that as more of a sign of an oversold USD/JPY than anything else. The pair fell 500 pips in a straight line coming into the day and shorts took a break after touching 148.50 in Asia.
The Swiss franc outperformed and rose to the best levels since February as it finds itself as a safe haven of choice.
EUR/USD fell to a one-month low at 1.0780 and is right back in the middle of the range for the year.
Check out our non-farm payrolls preview.
