This week’s nonfarm payrolls may be the last national employment data set before the September FOMC meeting. Under the current macro framework, the market needs a risk-free and weakening employment report to reduce the odds of a September rate hike.
While everyone is focused on tomorrow’s jobs report, this evening’s ISM Non-Manufacturing PMI data is also one of the hidden key points—don’t overlook it.
The Tuesday manufacturing ISM data showed a combination of slowing growth, weakening employment, and a price index that remains sticky. This effectively increases market concerns about the state of the U.S. economy. Tonight’s services ISM is even more important.
As the backbone of the U.S. economy, if the services data continues to show a mix of slowing growth, weaker employment, and a price index that holds steady and stays sticky, it would further increase the outlook for stagflation-like conditions. Especially given that the current national crude oil prices are still holding above $95, this creates an unfavorable combination of near-term stagflation expectations plus future inflation worries. That would raise the probability of a September rate hike, while also weighing on risk assets.
To weaken the probability of a September rate hike in the current high-oil-price environment, tonight’s ISM index should ideally show a combination of weak growth, weaker hiring, and a clearly falling price index—so as to dampen stagflation expectations. Only by bringing the economy back to a soft-landing outlook can the odds of a September rate hike be effectively reduced.
For the market, whether to trade a mild stagflation scenario depends on the bond market—especially the 2-year yield. Mild stagflation expectations would raise the odds of rate hikes and push the 2-year yield higher. Next, the 10-year yield would likely follow modestly, while the 30-year yield would be comparatively stable, or even slightly lower.
If tonight’s services ISM cannot shift the probability of a September rate hike, and combined with the current high-oil-price environment, I expect tomorrow’s big nonfarm payroll data may not be able to prevent the more hawkish policy stance. My biggest optimism is that this week we can suppress the September rate-hike expectations to around 50%. Currently, the probability of a September rate hike is 60.2% #比特币难破8万美元
While everyone is focused on tomorrow’s jobs report, this evening’s ISM Non-Manufacturing PMI data is also one of the hidden key points—don’t overlook it.
The Tuesday manufacturing ISM data showed a combination of slowing growth, weakening employment, and a price index that remains sticky. This effectively increases market concerns about the state of the U.S. economy. Tonight’s services ISM is even more important.
As the backbone of the U.S. economy, if the services data continues to show a mix of slowing growth, weaker employment, and a price index that holds steady and stays sticky, it would further increase the outlook for stagflation-like conditions. Especially given that the current national crude oil prices are still holding above $95, this creates an unfavorable combination of near-term stagflation expectations plus future inflation worries. That would raise the probability of a September rate hike, while also weighing on risk assets.
To weaken the probability of a September rate hike in the current high-oil-price environment, tonight’s ISM index should ideally show a combination of weak growth, weaker hiring, and a clearly falling price index—so as to dampen stagflation expectations. Only by bringing the economy back to a soft-landing outlook can the odds of a September rate hike be effectively reduced.
For the market, whether to trade a mild stagflation scenario depends on the bond market—especially the 2-year yield. Mild stagflation expectations would raise the odds of rate hikes and push the 2-year yield higher. Next, the 10-year yield would likely follow modestly, while the 30-year yield would be comparatively stable, or even slightly lower.
If tonight’s services ISM cannot shift the probability of a September rate hike, and combined with the current high-oil-price environment, I expect tomorrow’s big nonfarm payroll data may not be able to prevent the more hawkish policy stance. My biggest optimism is that this week we can suppress the September rate-hike expectations to around 50%. Currently, the probability of a September rate hike is 60.2% #比特币难破8万美元
