Rates – Lot’s in the price
Rates markets continue to be very well priced for a fast cutting cycle, with USD swaps pricing -200bp of cuts for the Fed over the next year, of which 100bp by year-end. This Friday’s labour market data will be decisive for the Fed to decide about their pace. Consensus believes NFP will rise 165k, versus 114k in the previous month. The unemployment rate is expected to fall from 4.3% to 4.2%. Such an outcome may push the Fed towards a smaller cut of only 25bp, but the markets nervousness into the event will stay high. If data does slow down more materially, the cuts priced are surely justified. But if data is stronger, global yields look too low.
Markets – Welcome to September
Markets traded sideways last week in anticipation of US labour market data this week, with the exception of some idiosyncratic events. Nvidia earnings disappointed, causing a 6.3% selloff in the stock. A weaker outlook from US discount retailer Dollar General on purchase power of low-income households caused a 32% drop in the stock price, and was quickly picked up by those looking for a more dovish narrative. With investors returning from holidays, we expect volatility to pick up from this week, as we enter an eventful month of economic data and central bank meetings.
Algebris Investments’ Global Credit Team
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