Investor Bets on July Rate Cut Increase as 'Employment Risks Are Trending Higher'

Economic

Central Bank

Summary:

Investors are increasingly betting on a Fed rate cut by July or September as labor market data softens and economic growth contracts.

Investors are growing increasingly confident the Federal Reserve will cut interest rates by the end of the year as labor market data has shown signs of cooling in recent weeks.

On Thursday, data from the Department of Labor released Thursday showed 1.974 million continuing claims were filed in the week ending June 14, up from 1.937 million the week prior and the highest level seen since November 2021. Economists see an increase in continuing claims as a sign that those out of work are taking longer to find new jobs.

"Employment risks are trending higher," Jefferies US economist Thomas Simons wrote in a note to clients on Thursday.

Elsewhere in economic data on Thursday, the third estimate for Gross Domestic Product (GDP) for the first quarter showed the US showed economic growth contracted at an annualized rate of 0.5%, more than the 0.2% was previously reported.

Following Thursday's data releases, markets were pricing in a 27% chance the central bank cuts interest rates at its next meeting in late July, up from a 12.5% chance seen last week, per the CME FedWatch Tool. Odds of a cut by the end of September have also surged, with markets now pricing in a 92% chance the central bank has lowered rates by then, up from a 64% chance seen just a week ago. Investor Bets on July Rate Cut Increase as 'Employment Risks Are Trending Higher'_1

Investor Bets on July Rate Cut Increase as 'Employment Risks Are Trending Higher'_1

In a speech on June 23, Federal Reserve governor Michelle Bowman noted that while the labor market is showing signs of strength, it "appears to be less dynamic."

"With inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think that we should put more weight on downside risks to our employment mandate going forward," Bowman said.

Bowman said she'd potentially support lowering rates as soon as July as long as inflation remains "contained," joining Fed Reserve Governor Christopher Waller, who also recently made a similar case.

With seven officials forecasting no interest rate cuts this year and eight penciling in two cuts, there's clear debate about whether rising inflation or a weakening labor market will drive the Fed's policy decisions over the next few months. While testifying in front of House lawmakers on Tuesday, Fed Chair Jerome Powell stressed the central bank is "well-positioned to wait" before moving interest rates.

Federal Reserve Chairman Jerome Powell arrives for the Senate Banking, Housing and Urban Affairs Committee hearing on Wednesday. (Tom Williams/CQ-Roll Call, Inc via Getty Images) · Tom Williams via Getty Images

A July or September cut —there is no August Fed meeting — has not yet become a consensus call among Wall Street economists, but many have argued that the odds of the central bank cutting in the coming months are on the rise.

In a note to clients on Thursday, Oxford Economics lead economist Nancy Vanden Houten wrote the latest jobless claims data are "consistent with softening of labor market conditions."

"For now, we don't think the labor market is weak enough to prompt the Fed to cut rates before December, but the risk is increasing that once the Fed starts to lower rates, it will have some catching up to do and will start with a 50bps rate cut," Vanden Houten wrote.

As the Fed rate cut debate heats up, next week will bring several key updates on the labor market. Job openings, quits and hires for the month of May will be released on Tuesday followed by a private payrolls report for the month of June on Wednesday. Last month, ADP data showed payrolls grew by just 37,000 in May, the smallest increase since March 2023.

On July 3, the June jobs report is set for release. As of Thursday morning, economists expect 116,00 nonfarm payrolls were added, a move lower from the 139,000 seen in May. The unemployment rate is anticipated to have moved up to 4.3% from 4.2% the month prior. Investor Bets on July Rate Cut Increase as 'Employment Risks Are Trending Higher'_2

Investor Bets on July Rate Cut Increase as 'Employment Risks Are Trending Higher'_2

Source: Yahoofinance

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Adam

Stocks

It wasn't that long ago that fears of a Chinese startup's AI advancements channeled a mix of anxieties about overblown tech stocks. Along with a trade war. Several storylines — from reckless AI spending to sky-high valuations — folded neatly into an argument that maybe this was the one step back after the two steps forward over the past couple of years.

But after a bout of plunging stock prices, Big Tech has mounted a comeback and then some. The off-the-charts excitement now that a suite of catalysts — trade war, Iran/Israel, and Fed cut hopes — have been put to the side is palpable.

Right now, as DataTrek's Nicholas Colas put it, "a bullish call on US large caps therefore requires believing that we can get to 1999-type valuations."

It's a charged date to throw into the mix, invoking the exuberance that led up to the dot-com bubble. But as Colas noted, there are key differences for investors to consider even if stocks are partying like it's 1999.

At the peak of the internet bubble, the benchmark S&P 500 (^GSPC) traded at more than 24 times forward year earnings estimates. As Colas noted, the index currently trades at 23 times this year’s numbers and 20.3 times next year’s consensus estimate. To see the bullish calls like the 10% gain from current levels we just got from BMO's Brian Belski, the multiple, depending on exactly how quarterly results go, could surpass that level. (Belski's model has a 24.4x ratio.)

That comparison may feel scary and bubbly, but there are a lot of reasons to be an optimist these days, despite the swirling negative catalysts and the lingering sense that trouble is around the corner. As Fed Chair Jerome Powell said last week, the "US economy has defied all kinds of forecasts for it to weaken."

Of course, plenty of bets won't pan out. Some estimates say that a huge portion of AI projects will vanish in a few years, and it'd be normal for emerging tech to have winners and losers. And as for the winners, well, you already know their names. They're powering the S&P 500.

Colas noted that this year has a much more positive setup than 1999, with rate cuts on the horizon and greater S&P tech exposure. The historic frames are different. So are the underlying technologies driving growth and producing actual profits, and reasons more will follow.

But the bullish sentiment feels familiar. That's what makes tech's latest surge so thrilling and disconcerting after the spring we've just had. As tech stocks grasp for new highs, it's difficult to tell if this is the precipice of a pullback or the staging for the next leg upward.

The stock prices, however, leave the market's view on it pretty clear.

Source: finance.yahoo

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Adam

Economic

President Trump is getting closer to naming his replacement for Federal Reserve Chair Jerome Powell as his patience with the central bank chairman runs out.

Trump told reporters Wednesday that he is down to three or four candidates, and The Wall Street Journal reported late Wednesday that he could announce his final pick by September or October — or even this summer — to undercut Powell’s authority for the remainder of his term ending in May 2026.

"I know within three or four people who I’m going to pick," the president said Wednesday without offering specific names.

The Wall Street Journal reported that former Fed governor Kevin Warsh and National Economic Council director Kevin Hassett are among the people being considered by Trump, and he has been pitched Treasury Secretary Scott Bessent as well.

Former World Bank president David Malpass and Fed governor Christopher Waller are among other possible candidates, the Journal reported.

Steve Moore, a longtime adviser to the president, told Yahoo Finance that Trump does want to announce his pick sometime soon, and that he does view it as a shot over the bow at Powell. Warsh, Hassett, Bessent and Malpass are all under consideration, he added, but Waller is not because he voted to keep rates on hold at the last central bank meeting.

This is not the first time that an early pick to replace Powell has been floated. Before Trump was elected, Bessent in 2024 floated the idea of naming a "shadow chair" well before Powell's term was up, ensuring that "no one is really going to care what Jerome Powell has to say anymore."

Bessent told lawmakers earlier this month he would like to remain in his seat until 2029, but he did not dismiss the possibility of becoming the next chair of the Fed.

Bessent said he has "the best job" in Washington and is "happy to do what President Trump wants me to do," while noting that he "would like to stay in my seat through 2029" to help carry out the administration’s agenda.

The active consideration of Powell successors comes after a period of intensifying pressure from Trump as the chairman’s guarded wait-and-see monetary policy stance continues to inflame tensions with the White House. The president has called repeatedly for rate cuts and lobbed a series of insults at Powell via social media, from "loser" to "fool."

Trump’s comments on Wednesday didn’t address the question of whether he is looking to fire Powell or announce his final pick quickly. Last week the president mused: "Maybe, just maybe, I'll have to change my mind about firing him?"

Powell has said he intends to serve out his term as chair and that he can't be removed by law.

"He goes out pretty soon, fortunately, because I think he's terrible," Trump added Wednesday.

The comments from the president came as Powell sat before Senate lawmakers for his second day of regularly scheduled testimony before Congress.

Powell told lawmakers that the central bank is "well-positioned to wait" on any interest rate adjustments until it has more clarity on how Trump's tariffs will affect inflation and the direction of the US economy.

The president's attacks on Powell intensified at the end of last week as Trump called for rates to drop from 4.25% to 4.5% to between 1% and 2% and said of Powell and the Fed's board of governors, "I don't know why the Board doesn’t override this Total and Complete Moron!"

Trump repeated some of those points in a Tuesday social media post, calling for rates "at least two to three points lower" and saying that Powell "will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate."

"I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come."

On Wednesday, Trump reiterated his oft-stated case for why Powell should lower rates by at least one percentage point immediately, citing "no inflation."

He also recounted an earlier face-to-face meeting with Powell, offering a mocking voice for Powell, and repeated his personal attacks by saying "I think he's a very stupid person actually" and calling him "an average mentally person."

Trump is not the only one calling for lower rates following the last meeting on June 18-19, when all central bank officials voted to keep rates unchanged for the fourth consecutive time.

Even some of Powell's fellow policymakers — Fed governors Michelle Bowman and Waller — have said in recent days that they now see cutting rates as soon as the Fed's next policy meeting in July due to recent mild inflation readings.

But other officials have pushed back on that urgency and warned that it is too soon to know the true effects of tariffs on inflation.

Federal Reserve Bank of Richmond President Thomas Barkin said Thursday tariffs likely to push inflation up over coming months, even though "I don’t expect the impact on inflation to be anywhere near as significant as what we just experienced” during the Covid-19 pandemic.

Trump has even mused about appointing himself Fed chair. One lawmaker asked Powell on Tuesday if that was even possible.

"I don’t know," Powell said, adding that it's "not a question for me."

Powell has not said if he also plans to leave the Fed's board after his chairmanship is up next May. His term as a Fed governor is not up until 2028.

And on Tuesday and Wednesday, he repeatedly dodged questions about Trump, Trump's policies, and the president's string of personal insults.

"All I want to do in what’s left of my time at the Fed is to have the economy be strong and have inflation be under control. I want to turn it over to my successor in that condition."

Source: finance.yahoo

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Blue River

Economic

Forex

Technical Analysis

USDCAD technicals

The USDCAD moved lower in today's trading, driven by broad USD weakness. Late yesterday, the pair broke below the 100-hour moving average (blue line) and retested it during the early Asian session, using it as resistance before beginning a more decisive move to the downside. That rejection helped solidify bearish control.

The pair also dropped below the 38.2% retracement of the decline from the mid-May high, further weakening the technical picture. Selling pressure deepened as the price fell under the 200-hour moving average (green line) and a swing area near 1.3707 (green numbered circles), which had previously been a strong ceiling for price rallies. After a brief consolidation, momentum picked up again, extending the decline.

The pair is now testing a critical support zone between 1.3633 and 1.3650, a level that has acted as both resistance and support throughout June (see red numbered circles). A clear break below this area would likely lead to additional downside pressure, reinforcing a short-term bearish bias. If 1.3633 fails to hold, traders will likely begin to target the June low at 1.3539 as the next key support level.

Key levels:

● Resistance: 1.3685 to 1.3693 (200-hour MA/swing area), 1.3721 (broken 38.2% retracement), 1.3777 (100-hour MA)

● Support: 1.3633–1.3650 (current swing area being tested), 1.3600 (natural support), 1.3539 (low for the year.)

Source: ForexLive

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Warren Takunda

Economic

President Trump is getting closer to naming his replacement for Federal Reserve Chair Jerome Powell as his patience with the central bank chairman runs out.

Trump told reporters Wednesday that he is down to three or four candidates. He could announce his pick soon, two people close to the administration told Yahoo Finance.

The possibilities, these people said, include former Fed governor Kevin Warsh, National Economic Council director Kevin Hassett, Treasury Secretary Scott Bessent, former World Bank president David Malpass, and Fed governor Christopher Waller.

The Wall Street Journal reported late Wednesday that he could announce his final pick by September or October — or even this summer — to undercut Powell’s authority for the remainder of his term ending in May 2026. The Journal also reported on the list of possible candidates.

"I know within three or four people who I’m going to pick," the president said Wednesday without offering specific names.

Another person close to the administration said late September is possible timing for an announcement, and that Bessent, Hassett, Waller and Malpass are under consideration but that the president is souring on Warsh.

A White House official said no Fed chairman decisions are imminent, although the president has the right to change his mind and he has many good options for the post.

Bessent told lawmakers earlier this month he would like to remain in his seat until 2029, but he did not dismiss the possibility of becoming the next chair of the Fed.

Council of Economic Advisers chair Stephen Miran in a Yahoo Finance interview Thursday dismissed the chances of any economic fallout that could come from such a potential move by Trump to announce a "shadow" chair.

"I don't know that I see risks to the economy from what the administration does on this stuff, as you know the Federal Reserve sets interest rates and so the primary risks to the economy are from what's actually going on with interest rates not from anything that we do or do not do on that front," he told Yahoo Finance.

The active consideration of Powell successors comes after a period of intensifying pressure from Trump as the Fed chair’s guarded wait-and-see monetary policy stance continues to inflame tensions with the White House. The president has called repeatedly for rate cuts and lobbed a series of insults at Powell via social media, from "loser" to "fool."