Morning Bid: Relentless rally pauses for breath
The relentless recovery in the S&P 500 from early August’s post-payrolls trough finally took a pause on Tuesday after eight straight up days, and futures are not giving too much indication about the direction of travel on Wednesday. The benchmark U.S. index fell 0.2%, hardly a dramatic fall, but a fall nonetheless. It was the index’s first down day since Aug. 7. S&P futures are hovering around unchanged on Wednesday, as are those on the Nasdaq and Dow Jones. The waning upside momentum arrives as markets turn their attention to U.S. jobs data, this time benchmark revisions to non-farm payrolls, which could show a weaker labor market than previously thought. But, as Deutsche Bank notes, the revisions only affect numbers up to the March payrolls and do not cover job gains since. Remember, it was July’s weak jobs report that helped send global equities into a tailspin on fears that the U.S. economy was heading for a recession. Markets moved rapidly to price in a faster pace of easing from the Fed this year and still see almost 100 bps of rate cuts by the end of 2024. With only three meetings left, that implies two quarter-point cuts and one 50 bps move, a much more aggressive pace than expected at the start of the month. In contrast, a slim majority of economists polled by Reuters believe the Fed will cut rates by 25 bps at each of the three meetings left this year, while only 11% of those surveyed expected the Fed to cut by 100 bps or more. Clues about the path of interest rates could come later as the Fed releases the minutes from its July meeting, when rates were held steady at 5.25%-5.5%.Policymakers have largely kept quiet on whether an outsized move could be possible, but in an interview with the Associated Press on Monday, Atlanta Fed President Raphael Bostic appeared to prepare markets for a more aggressive rate path lower. “Evidence of accelerating weakness in labor markets may warrant a more rapid move, either in terms of the increments of movement or the speed at which we try to get back,” Bostic said on Monday, referencing the level of rates that would not be restrictive.Fed Chair Jerome Powell will be able to give his view on where rates are heading on Friday when he speaks at the Kansas City Fed’s annual central bank get-together at Jackson Hole, Wyoming. As inflation cools and the labor market looks rocky, Powell might use his platform to signal markets are right about how quickly borrowing costs can be lowered. For now, markets are in wait-and-see mode. European shares are up slightly, the dollar is rising a touch but only after falling to its lowest level since January earlier in the day. Benchmark Treasury yields are little changed. Key developments that should provide more direction to U.S. markets later on Wednesday: * U.S. nonfarm payrolls benchmark revisions* FOMC minutes* U.S. to sell $16 billion of 20-year bonds* Earnings from Target, Analog Devices (NASDAQ:ADI), TJX (NYSE:TJX) More
