The American financial market was closed on Monday for Labor Day, but Tuesday will see some important economic data, with the most noteworthy being the August ISM Manufacturing Index released at 10 a.m. Eastern Time (10 p.m. Beijing Time). As the first important indicator of the American economy to be released this week, can the ISM Manufacturing Index release more signals of a "soft landing"?

Wall Street expects the August ISM Manufacturing Index to rise from last month's 46.8 to 47.5, although recovering, it still marks the fifth consecutive month of contraction.

As manufacturing sentiment improves, it is expected to further solidify the expectation of a slight rate cut by the Fed in September. The CME Group's FedWatch tool shows a 69% likelihood of a 25-basis-point rate cut in September and only a 31% chance of a 50-basis-point cut.

As for how the market will respond, Bank of America's renowned strategist Michael Hartnett commented in his latest Flow Show report that there may be opportunities to re-enter long-term bond trades, especially if the ISM Manufacturing Index exceeds 49, which could push the 30-year U.S. bond yield above 4.3%.

Some analysts also state that if the index is above 50, it indicates that manufacturing business activity has returned to the expansion range, which may directly boost the US dollar and put pressure on gold prices.

In the July ISM Manufacturing Report, there are several key data points worth noting:

The employment index dropped from the previous 49.3 to 43.4;

The new order index also decreased from 49.3 to 47.4.

The inventory index decreased from 45.4 to 44.5.

These data are particularly important for Bank of America, as Bank of America wrote in the report: 'The ratio of new orders to inventory is the best three-month leading indicator of the ISM Manufacturing Index.' According to historical data, Bank of America predicts that the ISM Manufacturing Index will reach 52 in October 2024, and this number will be announced on November 1st.

In short, although the current data shows a downward trend, Bank of America expects manufacturing activity to rebound in the coming months.

Furthermore, Bank of America states that if the ISM rises, the biggest upside trades will be in China, commodities, and stocks in South Korea/emerging markets, while if the ISM falls again, the biggest downside trades will be in home builders, semiconductors, and financials.

Compared to Hartnett, Jared Woodard, a strategist at Bank of America and a co-author of the report, sees even greater opportunities than the bond market. Woodard believes that in the 20th century, the average inflation rate was 5%, and it was only due to the rare combination of globalization, low debt, demographic structure, and technological disruption that inflation fell to 2%. Now, with these factors reversing, the commodities bull market is just beginning.

On the third day after the release of the ISM data, which is Friday, the market will welcome the last non-farm payroll report before the September Fed rate decision. In the context of a downward trend in inflation, this employment report is undoubtedly one of the most important data of the week and even September. Investors will closely watch whether the labor market can show enough resilience to dispel recession fears.

According to a consensus forecast by economists surveyed by Bloomberg, the number of new non-farm jobs in August is expected to reach 0.163 million, a significant increase from July’s 0.114 million, while the unemployment rate is projected to drop from 4.3% to 4.2%, marking the first decline since March. In addition, the year-on-year growth rate of hourly wages is set to increase from 3.6% to 3.7%.

Editor/ping