Markets

The US Bureau of Labor Statistics kept most of us waiting yesterday. The preliminary benchmark revision of the payrolls for the year to March 2024 finally showed the feared, significant downward revision. The actual wage sum was 818,000 less or about 68,000/month. This reduces the average monthly net job growth over the reference period from 242,000 to 174,000, which is still solid. From a dynamic and narrative perspective, it reinforces concerns that the Fed may be lagging behind. As inflation gradually comes under better control, the Fed now has the opportunity to focus on the second pillar of its dual mandate: maximum employment. Given the tipping point in the labor market advocates a less restrictive monetary policyWe agree with this view, but still believe that the US (money) markets are going too far with their bets on interest rate cuts this year and next. However, there is no point in fighting against the strong market trends at the moment. The minutes of the July FOMC meeting show that the outcome (unchanged) was closer than expected. “Several officials noted that recent progress in inflation and the increase in the unemployment rate had provided a plausible argument for a 25 basis point reduction in the target range at this meeting, or that they could have supported such a decision. The vast majority noted that if data continued to be broadly in line with expectations, it would probably be appropriate to ease policy at the next meeting.” The US dollar and the front end of the US yield curve continued to drift south on the heels of the releases. Interestingly, the very long end of the US curve showed signs of fatigue. The yield on 30-year US Treasury bonds is even slightly higher. Daily changes ranged from -5.4 basis points (2 years) to +1.7 basis points (30 years). The EUR/USD rate closed at 1.1150, above the December 2023 high of 1.1139. Finally, the greenback also closed above the day’s lowest level. The major US stock indices rose by as much as 0.6% on the Nasdaq. Today’s US agenda includes the PMIs for July. Risks are tilted to the downside. We continue to expect US (ST) and USD yields to remain near recent lows, as the possibility of a 50bp rise in September ahead of early September data releases (ISMs, payrolls) cannot be ruled out.In Europe, the wildcard is the purchasing managers’ indices and especially the wage data for the second quarter. The latter risk being more sluggish and limiting the ECB’s room for maneuver compared to the Fed.

News and views

The Bank of Korea (BoK) left its key interest rate unchanged at 3.5%Governor Rhee Chang-young pointed out that the central bank There could be an interest rate cut at the upcoming meetings. The domestic economy continues to show a divergence between weakening domestic demand and strong export growth. The BoK revised its growth forecast for 2024 slightly from 2.5% in May to 2.4%. Growth for 2025 is expected to remain unchanged at 2.1%. It estimates that Inflation maintained its underlying downward trend. The consumer price index rose to 2.6% year-on-year in July due to higher gasoline prices, but the core inflation rate remained stable at 2.2% and the BoK expects inflation to slow further (2.5% from 2.6% this year, 2.1% next year). The BoK statement concludes that the central bank will thoroughly examine the trade-offs between policy variables such as inflation, growth and financial stability and to examine the right time to cut interest rates while maintaining a restrictive monetary policy. Concerns about financial stability (real estate prices and household debt) give cause for caution and require a cautious approach.

The Gap between the Hungarian Central Bank (MNB) and the government Yesterday, the debate flared up about the balance between fighting inflation and supporting (sluggish) economic growth. Hungarian Finance Minister Nagy concluded that the MNB is focusing too much on inflation. He believes that inflation of just under 4% is low enough to start a more growth-promoting policy.With economic growth expected to be a subdued 2% this year, Nagy believes the central bank should take supportive measures, possibly including initiatives like the previous Funding for Growth program. Comments come like The central bank recently indicated that the scope for a continuation of its easing cycle is shrinking (only one or two more rate cuts of 25 basis points this year; key rate currently at 6.75%)). The MNB meets next week. The dispute between the MNB and the government has often been negative for the forint, but this time The HUF continues to recover gradually due to easing global financial conditions. EUR/HUF is currently trading at 292.7.

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