Will US jobs data push the Fed into a deeper rate cut?

Monthly US jobs data is always closely watched, but interest in Friday’s report is even more intense than usual. At stake, investors believe, is the likely size of the Federal Reserve’s first interest rate cut later this month.

Economists expect 163,000 jobs to have been added to US payrolls in August, according to a Reuters poll, but individual forecasts vary widely.

Last month, Fed Chairman Jay Powell made it clear at the central bank’s annual symposium in Wyoming that he was focused on the risks of a weaker labor market, although he warned that the timing and pace of rate cuts still depended on future data.

“Payrolls are going to be a big number for the markets as well as the Fed,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “The way Powell framed things at Jackson Hole now put wages first.”

Investors are still unsure whether there will be a quarter-percentage-point, or half-percentage-point, cut at the Fed’s mid-September meeting. Futures suggest a quarter-point cut is most likely, but pricing implies a 30 percent chance it will be deeper, according to CME’s FedWatch tool.

Friday’s reading also gets extra weight after July’s report beat expectations. Then wages rose by 114,000, well below forecasts of 175,000 new jobs, triggering a brutal market selloff around the world.

Another number that deeply beats expectations could once again raise fears that the economy is slowing more sharply than previously thought and spur the market’s bets on a half-point cut later in the month. Jennifer Hughes

Will the FTSE 100 hit a record high?

Several European stock indexes hit record highs in August, and investors expect London’s FTSE 100 to join the club soon.

Britain’s share index closed up a few points on Friday at 8,376.6, but was just 70 points, or 0.8 percent, off the record high of 8,445.8 set in May.

The benchmark has risen 8.3% this year, but has been flat for the past three months. However, sentiment is starting to turn in its favor, driven by investors’ belief that July’s general election marks the beginning of political calm and further signs that inflation is starting to ease.

“Following the recent election, the UK is now among the countries with lower political uncertainty in Europe, while having similar growth prospects,” said Maximilian Uleer, head of European equities at Deutsche Bank. The bank has the FTSE down as its most favored European index.

UK markets have little exposure to tech stocks, which has softened the blow of recent volatility following earnings from US giant Nvidia, which sparked a pullback on Wall Street in late August.

Optimism was boosted by sterling’s strengthening against the dollar, up 3.1% year-to-date, helping to ease fears among overseas investors that cash flowing into the market could be quickly eroded by a weak currency, according to Tineke Frikkee, Head of Department. UK equity research at Waverton Investment Management.

However, Frikkee warned that while the FTSE 100 proved “more defensive” than US shares, it was still unclear how quickly interest rates would fall in the UK and how companies would react to a potential slowdown of major economies. Rafe Uddin

Will Turkey’s inflation rate continue to fall?

Turkey’s inflation rate is expected to have fallen sharply in August, bolstering policymakers’ confidence that a broad economic reform program is slowing soaring prices.

Consumer prices are expected to have risen at an annual pace of 53 percent in August, up from 62 percent in the previous month, according to a FactSet survey of economists.

Price growth is also expected to have slowed significantly month-on-month after accelerating to 3.2 percent in July, as electricity price hikes rippled through Turkey’s $1 billion economy, economists said ahead of the country’s statistics institute report on Tuesday.

Turkey has sharply tightened monetary policy as part of an effort to restore rational economic policymaking that began after President Recep Tayyip Erdogan was re-elected in May 2023.

The central bank raised its key interest rate from 8.5% in June 2023 to 50% in a bid to curb overheating consumer demand that has led to severe economic imbalances, including a widening current account deficit.

The new measures, which also included tax hikes, showed early signs of success, narrowing the current account deficit and rebuilding central bank reserves that had been severely depleted by previous unorthodox economic policies. Still, economic officials privately acknowledge that much of the drop in inflation, which has hit 75% more recently, was the result of last year’s very high price benchmark.

The real test will come in the coming months, when investors will have a clearer picture of whether the policies are working. Turkish market participants expect inflation to fall to 43 percent by the end of the year, according to a central bank survey. However, consumer expectations remain unanchored, with a separate survey by Istanbul’s Koç University showing that households expect 96% inflation at the end of 2024. Adam Samson