After the heavy data last week, the data docket takes a bit of a breather with only a handful of US data releases this week. Similarly, the Fed speaking lineup is relatively light as well, though those few appearances will likely be heavily scrutinized for any prospects of near-term rate cuts, especially in the wake of last week’s weaker-than-expected jobs report. We now see a reasonable probability of a 50-bps cut in Sep if upcoming employment data disappoints too which we believe will be the case. Softness that had been evident in details of the jobs report is now apparent in the headline numbers. Markets and Fed officials should now more closely mirror our view that a low-hiring labor market, together with slowing growth create downside risk to employment and reduce the risk of persistent inflation. We expect 25bp rate cuts to resume in September and continue at each meeting until March of next year, implying a 3.00-3.25% terminal policy rate range. Risks are balanced toward more rapid and/or deeper cuts. In UST auction supply we have 58 BN USD of 3 yr USTs on Tuesday, 42 BN USD of 10 yr USTs on Wednesday & 25 BN USD of 30 yr USTs on Thursday. One development last Friday was that Governor Kugler announced her resignation from the Board, effective August 8th, allowing President Trump to nominate her replacement. While the normal nomination and confirmation process can take months, Section 10.5 of the Federal Reserve Act grants the President the “power to fill all vacancies that may happen on the Board of Governors of the Federal Reserve System during the recess of the Senate by granting commissions which shall expire with the next session of the Senate.” In other words, Trump could temporarily appoint a new Governor through January 2027 during a Senate recess without going through the traditional confirmation process. The Senate is set to be out of session in state work periods from August 4th through September 1st, though during this period, the Senate could opt to hold pro forma sessions to prevent recess appointments. We had an eventful last week by the end of which we are now sure that the employment mandate of Fed might come into focus much sooner and much faster than what Powell is projecting. The Jackson Hole speech by Powell on 23rd Aug is now critical to understand where he stands now in his employment outlook. We also believe Trump might announce a shadow Fed chair immediately after JH speech by Powell if Powell continues to insist on wait & watch approach. We continue to remain received on 2yr USTs and 1yr-1yr SOFRs and look for further move down on US short end yields. Markets are now pricing in 60 bps of cut by end CY25 which can easily go to 75 if Aug NFP also disappoints which we believe is a large probability. The Bureau of Labor Statistics (BLS) is scheduled to release the first-quarter 2025 data from the Quarterly Census of Employment and Wages (QCEW) on September 9, 2025. This release will coincide with the preliminary estimate of the annual benchmark revision to the establishment survey data. We believe there will be major downward revisions to monthly NFP data in these revisions. In RoW events, BOE meeting on 7th Aug is likely to see consensus 25 bps cut. We expect two votes for a larger cut and two for no cut at all. We see no change in guidance. We don’t expect anything concrete on QT ahead of September. As rates approach neutral, decisions are likely to become trickier and more data-dependent. We still see a terminal rate of 3.50% in February. In Canada labor data on Friday, we expect July labor survey to show the pace of hiring slowed to 12k after June’s blowout report. In Japan, Japan's ruling LDP is holding general meeting of its lawmakers in both chambers of the Diet, the country's parliament, on Aug. 8. We dont expect any threat to PM Ishiba on this event. Hence, we remain bullish on JPY and expect a 25-bps hike by BOJ in the 30th Oct meeting.
