This week’s economic calendar remains somewhat busy with a handful of notable data releases amidst a light sprinkling of Fed speak. Powell’s address leaned more dovish than we expected. Chair Powell is leaning towards a rate reduction at next month’s meeting. But markets are pricing in only 20 bps of cut for Sep at Friday’s close & 54 bps of cuts for REMCY25. This we believe can easily increase to 75 bps of cuts for REMCY25 if the Aug NFP data disappoints (our estimate is at sub 50k for Aug NFP against current consensus of 85k). We also believe that the Sep NFP data could be sub zero which could further bring the employment mandate of Fed more into focus over it’s price stability mandate. Chair Powell’s Jackson Hole message cleared the market’s low bar for dovishness following a steady erosion in Fed cut pricing. It will be up to the data to determine the pace and depth of cuts, but the position and balance of risks around the labor market leave us comfortable with front-end longs in the US. In US macro data this week, we have new home sales, durable goods orders, consumer confidence, 2nd estimate of Q2 GDP & core PCE. We expect core PCE for July to come at .29% MoM. The strong PPI print was driven by non-market-based components (including portfolio management and investment advice prices), which Chair Powell often downplays. Thus, some policymakers might look through the strength in July core PCE inflation. In auction supply, we have 69 BN USD of 2 year notes on Tuesday, 70 BN USD of 5 year notes on Wednesday & 44 BN USD of 7 year notes on Thursday. Also, the US refunding month of August produces a large +0.12y duration increase (for the US), complimented by a bond/equity rebalance favouring bonds. We expect 20-25 bps lower movement in 2-5year USTs in the next 3 weeks along with 10-15 bps lower movement in 10-year USTs. 2-10 US SOFR can steepen to 50 levels from the current 26 levels. In RoW data, we expect a series of soft HICP nos in Eurozone countries on Friday which will support our case that ECB might cut by another 25 bps by Dec'25. Even Reuters did a story yesterday on the same lines. In Canada, Q2 GDP is likely to come weak at -.5% which will show the effects of the trade war after the Q1 boom. In Japan, we expect the core core CPI to inch up to 3.2% YoY. The headline gauge likely slowed to 2.6% from 2.9%, mainly due to temporary energy subsidies that will temper inflation through October. But our view remains intact that BoJ is set to hike by 25 bps in it's 30th Oct meeting if political uncertainties reduce.
