Global Markets: US Treasury yields took a direction on Wednesday after a big downward revision in nonfarm payroll data and FOMC minutes seemed to suggest a September rate cut was pretty certain, barring any accidents or data surprises. The 2-year Treasury yield fell 5.3 basis points, while the 10-year was only down 0.6 basis points to 3.801%. EURUSD continued to rise but faltered as it approached 1.1180 and is now just below 1.1160. AUD is hovering around 0.6750, while Cable has followed EUR's rise and has risen to 1.3092. USDJPY has also fallen and is currently trying to hold below 145. In Asia, some of the currencies that have performed well recently corrected slightly on Wednesday. THB, IDR, and KRW all fell slightly but could reverse today. USDCNY was little changed at 7.1314. U.S. stocks rose slightly on Wednesday, while Chinese stocks fell.
G-7 Macro: Two big things happened on Wednesday. The first was the downward revision of payroll numbers. There's a long note from James Knightley with more details here.
Importantly, employment levels turned out to be 818,000 lower than reported before the revision. That still represents an increase of 2.1 million jobs in the year to March 2024, but a noticeably slower rate of growth. The revision does not affect the unemployment rate, which is calculated from a different data source.
The second important release was the minutes of the July FOMC meeting.
“Most members believe that if the data continue to emerge in the expected manner, it will likely be appropriate to ease policy at the next meeting.”
The key sentence in the report is: “Most participants recognized that if data continue to come in at the expected pace, it would likely be appropriate to ease policy at the next meeting.” So, unless there is a major upside shock in payrolls or inflation by then, September looks like a time for easing. Today is relatively quiet in the US macro economy, with PMI data and existing home sales being released. PMI data will also be released in Europe.
Japan: Japan's PMIs improved slightly in August. The manufacturing PMI rose to 49.5 from 49.1 as auto production gradually normalized and demand for IT remained strong. The services sector PMI rose further to 54.0 from 53.7.
South Korea: The Bank of Korea will hold its monetary policy meeting today and also release its quarterly outlook report. As for the policy meeting, the market expects no interest rate changes, but opinions are divided on whether there will be a minority vote. The recent surge in mortgages and home prices in the capital area is likely to keep the Bank of Korea from issuing a stronger dovish signal. But at the same time, the slowdown in household consumption and domestic activity has strengthened the need for interest rate cuts. If a minority vote is issued, the market will probably take it as a strong signal for an October rate cut, and market interest rates are likely to fall more rapidly from current levels. Regardless of the minority vote, Governor Lee is expected to maintain a hawkish tone in his post-meeting press conference. As for the outlook report, 2024 GDP and CPI forecasts are likely to be revised downwards following lower-than-expected GDP in Q2 2024.
Australia: Australia's manufacturing and services PMI data points to solid activity. The manufacturing PMI remains below the breakeven point of 50 but rose to 48.7 from 47.5. The services sector, which accounts for much of the economic activity and employment, rose to 52.2 from 50.4. This doesn't make the Reserve Bank of Australia's job easier.
India: Recent months have seen very positive PMI data for both manufacturing and services. We do not expect this to change dramatically with the numbers released today. July manufacturing PMI was 58.1 and services PMI was 60.3.
