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Odds Surge on Wall Street's Bet on 50 Basis Point Rate Cut, A Blessing or a Curse for Markets?
The jobs report released this week signal a slack in the labor market, reigniting expectations for a significant 50 basis point rate cut. According to the CME FedWatch Tool, traders' anticipation of a substantial 50bp rate cut in September has quietly risen from 34% last week to 41%.
Source: CME FedWatch
Labor market data shows “discrepancies”
● JOLTs data
The job openings fell to 7.67 million in July, down 237,000 from June’s downwardly revised figure, marking the lowest level since January 2021, according to a report from the Labor Department on Wednesday.
Source: Trading Economics
● ADP Employment Change
Additionally, the ADP employment report released overnight showed an increase of 99,000 jobs in August, marking the lowest level in three and a half years and missing the market expectation of 145,000 by a wide margin.
Source: Trading Economics
● Nonfarm Payrolls
After that, all eyes are on the non-farm payrolls set to be released at 8:30 a.m. ET this Friday. However, the non-farm payroll may contradict the ADP data, with analysts expecting the median forecast to show a significant rebound from 114,000 last month to 165,000 in August. The unemployment rate is expected to drop to 4.2% from 4.3% the previous month, indicating a warming labor market, putting bets on a 50 basis-point rate cut to the test.
Wall Street is divided on the extent of the rate cut
Given the conflicting jobs report, Wall Street is divided over the extent of the rate cut in September. Banks such as $Citigroup (C.US)$ and $JPMorgan (JPM.US)$ are boldly betting that the Federal Reserve will slash interest rates by a half-percentage-point this month.
Interest-rate swap contracts show a roughly 35% chance that the Fed executes a jumbo cut when it meets September 17 to 18, but a quarter-point reduction is still favored by traders and remains the more popular call among economists.
That split has boosted the scope for big gains and losses in the U.S. market around the jobs report.“There’s a big amount of uncertainty that seems likely to be resolved by the release of August non-farm payrolls,” said Matthew Raskin, US head of rates research at Deutsche Bank AG.
If market-implied expectations shift decisively toward one outcome or the other, wagers on a 25-basis-point move will “make a little or lose a lot — and the opposite if you’re betting on 50 basis points,” he added.
Also, derivatives broker Alex Manzara at R.J. O’Brien & Associates said,“There’s a lot of uncertainty in the market about the employment report, the stock market and what the Fed is going to do, and the last one is very dependent on the first two.” Since late July, the S&P 500 Index has fallen more than 2% on three occasions.
However, some economists warn that a deeper interest cut from the Federal Reserve this month could spook the financial markets and send the wrong message about an imminent risk of recession.
“The 50 basis point cut might send a wrong message to markets and the economy. It might send a message of urgency and, you know, that could be a self-fulfilling prophecy,” he continued.
“I don’t see the urgency for the 50 basis point cut,” Lagarias said.
Lagarias is not alone in cautioning the Fed against a half-point reduction this month. Mohit Kumar, chief financial economist for Europe at Jefferies, said that there is “absolutely no need” for the Fed to cut by 50 basis points at the September meeting.
Mooers, how many basis points do you think the Federal Reserve will cut interest rates at the September FOMC meeting?
Source: CNBC, Yahoo Finance, Bloomberg
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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10baggerbamm : you're damned if you do, your damned if you don't.
is the Fed behind the curve many would say yes I'm in that camp ? why is this?
because the data that the FED is so data dependent on is always wrong.
815,000 Jobs go poof
every month there's always revisions to the prior month or prior months and they're never favorable.
the FED should have cut in June and now they're faced with this dilemma... how much will they cut most agree a quarter is all that's needed ...
I could argue and have that they don't need to cut at all because GDP is increasing at this point we're at 3% and you cut rates to accelerate GDP but it's already accelerating..
it's much bigger than GDP a lot of it has to do with sustainability of The debt service that every 3 months it's a couple trillion dollars and it's only going to magnify and we're already at 130% of GDP and that's only going to get worse so you have to have lower rates I think for servicing the debt.
50% say the market will sell off severely if it's a 50 basis point cut because that will show that chairman Powell is behind the eight ball that the economy is headed for a cliff the ship is headed to ground. and if there's a 50 basis point cut get out of stocks ASAP because we're going into a recession that's what half of these analysts on TV online are pounding the table advising their clients and acting accordingly.
IMHO, they are wrong because you can't have a recession with 3% GDP you need two consecutive quarters of negative GDP which is what happened in q1 and Q2 of 2021 under Biden Harris.
the other half say a quarter is all we need and a series of quarter cuts will in time stimulate the economy and grow the job market again.
at the end of the day it really doesn't matter a quarter or a half.. because the data that they act on is constantly wrong.
101775147 AL alfijai : 815,000.0
101775147 AL alfijai 10baggerbamm : ok boss ku
57AB : a convicted felon and found guilty sex bully wants to hire a union hater, someone who has left the banks holding the bags for X financing if he gets back to the white house. an insurrectionist, ivf destroying bully and someone who said that after this elections no more elections in this country and the economic club of new York is inviting him to speak to them. I most people in wall street are deplorable crooks.
103721817 : everything goes well very good those GDP is very good it's going up to high high season thank you
DogeMoon 57AB : Convicted by crooked courts, found guilty of assaulting a woman who has zero proof amd claimed to be wearing a dress that wasnt released till years after . He wants to bring on the worlds richest man who has created or helped to build some of the biggest companies in the world . Reusable rockets , self driving EV’s … amd put up a large part of his fortune to save free speech LITERALLY PUTTING HIS MOMEY WHERE HIS MOUTH IS …. He has said on several occasions he wont sign national abortion bans and is in favor of having IVF funded by insurance … and the alternative is someone who didnt get elected to be the DNC candidate but was installed by the elite ruling class , who has ZERO policy positions on her web site , who was the least liked VP in history and had to drop out of the one primary she did run in due to voters disliking her, who has zero respect in the nation or the world , has failed at every job given her ESPECIALLY BORDER CZAR, and who chose a VP who’s own family has come out against him saying the idea of him in that role os terrifying …
103288050 : Article displayed incorrect logo for Morgan Stanley and BofA - reversed logo placement.
webguybob : I'm bullish on the cuts, but I think I'm getting out of tech.
Siti Rahimah 101775147 AL alfijai : $SPDR S&P 500 ETF (SPY.US)$
101775147 AL alfijai : Yes, boss.
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