By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
Spurred on by the U.S. President and Treasury Secretary, expectations for interest rate cuts are reaching a fever pitch, with markets now starting to price in a small chance of a half point cut as soon as next month as they await today’s producer price report.
On Wednesday, Scott Bessent said downward revisions to the U.S. payrolls meant the Federal Reserve needed to play catch-up. He said there was a “very good chance” of a 50 basis point reduction in September and that rates should “probably” be 150-175 bps lower.
* Wall Street zoomed to new records on Wednesday, but stock futures stepped back a touch ahead of the PPI report but two-year Treasury yields continued to stalk three-month lows. Even though many Fed officials are still cautious about the prospects for a half point cut, Wall Street banks are starting to forecast as many as three cuts this year, arguing softer jobs growth, a lack of “pass-through” from tariffs to consumer prices, and a new appointee to the Fed board will tip the balance.
* Thursday’s producer price update for July will be important as details feed into the Fed’s favored PCE inflation gauge. Annual headline and core PPI inflation are expected to pick up to 2.5% and 2.7%, respectively. Meantime, President Donald Trump said his pick for the next Fed Chair would be named “a little bit earlier” and he’d narrowed it down three or four names, despite indications earlier on Wednesday that as many as a dozen names had been considered.
* Elsewhere, the inflation picture softened further given this week’s slide in crude oil prices to two-month lows ahead of the critical U.S.-Russia summit in Alaska tomorrow. Japan’s yen jumped to three-week highs, knocking the Nikkei stock index back sharply from record highs, as Bessent also said the Bank of Japan was “behind the curve” in tackling inflation there. Sterling hit six-week highs on the euro after the release of above forecast UK GDP data. Finally, riffing off the week’s heady surge in risk appetite and rate cut bets, Bitcoin jumped to a new record high at $124,481.
Make sure to check out today’s column, where I discuss why political pressure on government statisticians and private forecasters risks sending markets down a rabbit-hole.
Today’s Market Minute
* U.S. President Donald Trump threatened “severe consequences” if Russia’s Vladimir Putin does not agree to peace in Ukraine but also said on Wednesday that a meeting between them could swiftly be followed by a second that would include the leader of Ukraine.
* The announcement of the results of a U.S. probe into pharmaceutical imports and new sector-specific U.S. tariffs likely remains weeks away, four official and industry sources said, later than initially promised.
* Investors are increasingly pricing in a “higher for longer” interest rate environment in the euro zone, with a potential cut in March seen as a temporary blip before borrowing rates climb back above 2%.
* OPEC+ is widely believed to be pivoting from trying to bolster prices to rebuilding market share, but a recent decision by Saudi Arabia seems to be at odds with this strategy. Read the latest from ROI columnist Clyde Russell.
* It’s widely believed that U.S. President Donald Trump’s insistence on lower interest rates is what’s making life most difficult for Federal Reserve Chair Jerome Powell and his colleagues. But ROI columnist Jamie McGeever argues that what’s causing the biggest headache for Fed officials is probably more prosaic: economic data.
Chart of the day
As Trump prepares to meet Russian President Vladimir Putin on Friday on prospects for ending the Ukraine war, the legacy of the conflict on the global economy is assessed. The added inflation fallout from 2022’s invasion and energy price spike has dissipated largely but the United States emerges from the period with the highest inflation rate of the Group of Seven major economies.
Today’s events to watch
* U.S. July producer price report (8:30 AM EDT) weekly jobless claims (8:30 AM EDT)
* Richmond Federal Reserve President Thomas Barkin speaks
* U.S. corporate earnings: Applied Materials, Tapestry, Amcor, Deere
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(by Mike Dolan; Editing by Toby Chopra)
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