After fresh signs of a cooling labor market, investors are bracing for inflation reports in the coming days that will help shape next week’s Fed meeting and the path of rate cuts into 2025 — a key test for whether Wall Street can sustain this month’s rally. Money markets are almost fully projecting three Fed cuts this year, with US producer and consumer price index data due this week.
“The markets appear to believe will be enough to protect the US economy from a recession, judging by current risk appetite,” said Kyle Rodda, a market analyst at Capital.com in Melbourne. “A spicy inflation print would complicate this situation and force the Fed into potential nasty trade offs between the labor market and price stability.”In Asia, traders will monitor the potential for joint action by the US and the European Union to pressure Russia into Ukraine talks. President Donald Trump said he’s prepared to join the bloc to impose sweeping new tariffs on China and India — key buyers of Russian oil — and also said he plans to discuss trade with Indian Prime Minister Narendra Modi “in the coming weeks.”
Investors are also awaiting China’s August print for factory-gate prices and consumer prices to gauge the economic impact of the government’s anti-involution campaign and the ongoing deflationary pressure.The yen was little changed early Wednesday after gaining Tuesday, following a report that Bank of Japan officials may raise interest rates again this year, regardless of domestic political instability.
Back in the US, the most relevant question now becomes the extent to which the August inflation data will reshape the market’s expectations for the Fed’s decision next week, according to Ian Lyngen and Vail Hartman at BMO Capital Markets.
“The Fed is cutting 25 basis points — barring a far more dramatic downshift in the trajectory of realized inflation, in which case a half-point cut could be on the table,” they said. “We’re solidly in the quarter-point camp and view the August inflation update as more meaningful for the conversations about where the Fed cutting cycle ends, not how it begins.”
In the run-up to the inflation reports, government data showed US job growth was far less robust in the year through March than previously reported. The number of workers on payrolls will likely be revised down by a record 911,000, or 0.6%, according to the preliminary benchmark revision out Tuesday. The final figures are due early next year.
Jamie Dimon said the record revision to US payrolls data is further proof that the US economy is battling a slowdown.
“The economy is weakening,” the JPMorgan Chase & Co. chief executive officer said in an interview with CNBC Tuesday. “Whether that is on the way to recession or just weakening, I don’t know.”
