Latest Data Eases Recession Fears and Calms Market Panic
Following a weaker-than-expected US NFP report for July, investors initially panicked as recession fears resurfaced. However, incoming data after the jobs report suggests that the US economy may not be on the brink of a recession as feared.
The ISM non-manufacturing index returned to expansionary territory, and the GDPNow model pointed to a 2.8% q/q SAAR growth rate in Q3. Additionally, jobless claims saw their largest drop in nearly a year during the week that ended on August 2.
Fed Rate Cut Bets Remain Overly Dovish
Immediately after the NFP data release, investors ramped up their rate-cut bets, expecting as much as 125bps worth of reductions by the end of the year. However, as new information came in, they adjusted their expectations to around 100bps worth of cuts. Still, this remains an overly dovish bet, with a potential 50bps cut at one of the remaining meetings this year.
CPI and Retail Sales Data Pose Upside Risks
With attention now turning to US CPI data for July on Wednesday and retail sales numbers on Thursday, there are expectations for steady headline CPI rates and a slight decrease in core rates. However, recent price subindices suggest potential upside risks for inflation. A potential improvement in retail sales could further ease recession fears and reduce the need for aggressive rate cuts by the Fed.
Overall, a stronger dollar could push the Euro/Dollar pair back into a range, with potential support levels at 1.0900, 1.0780, and 1.0745. On the upside, a break above 1.1000 could signal bullish momentum.