Fed rate cut over-priced for September
|We are paying particularly close attention to the weekly jobless claims indicator, and it continues to bounce around near all time lows relative to the size of the US labour force. Second-quarter GDP growth was revised higher last week on stronger consumer spending, though this is admittedly a lagging data point.
The key test comes this Friday as the August labour report is due to come out. Markets are pricing in about a one-third chance of a 50bp cut from the Fed at its September meeting (18/09), but we think this is too much and expect that a solid NFP print will confirm our view.
Another sizable downside surprise, however, could raise expectations for a bumper cut, and would almost certainly trigger fresh downside in the US currency.
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