“If you see that inflation data come in a little better than expected, you’re going to really start to hear the conversation around a 50 basis point cut.” – 01:58
Michael Reinking, Senior Market Strategist at the NYSE, joins Remy Blaire to discuss the critical economic factors currently shaping the financial landscape, particularly focusing on inflation and job data. The discussion centers around how these elements could influence the Federal Reserve’s decisions regarding interest rates.
Remy begins by highlighting the recent movements in Treasury yields, noting that the 10-year yield has fallen to its lowest level since April, following a jobs report that revealed slower-than-expected hiring in August. This backdrop sets the stage for what many analysts predict will be a near-certain rate cut from the Federal Reserve in the upcoming week, although the specifics of future rate adjustments remain uncertain.
The conversation shifts to the anticipated Bureau of Labor Statistics (BLS) non-farm payrolls revision, which is expected later in the morning. Michael shares his expectations, indicating a wide range of potential job revisions, with estimates suggesting that between 500,000 and 1 million jobs could be removed from the previous year’s data. He emphasizes that this significant adjustment could alter the narrative around job creation, with administration officials hinting at a middle ground of approximately 700,000 to 800,000 jobs being revised.
As they look ahead to the upcoming inflation reports, Michael discusses the asymmetric setup for the Federal Reserve. He explains that if the job revisions lean towards the higher end and inflation data comes in better than expected, discussions around a more aggressive 50 basis point rate cut could gain momentum. Remy notes the importance of monitoring financial news outlets for any shifts in narrative that could influence market sentiment.
The conversation then transitions to the equity markets, where Remy and Michael analyze performance trends since the market reached fresh highs at the end of June. Michael points out a consolidation phase within a specific range, identifying key levels to watch, particularly the S&P 500’s 50-day moving average. He warns that breaking below certain thresholds could signal a return to previous lows, while a breakout above recent highs would need to be confirmed by strong market momentum.
Finally, the discussion shifts to the bond market, where they consider the implications of political developments overseas and their potential impact on U.S. bonds. With the 10-year yield hovering just below the 4.07% level, Michael anticipates increased volatility as the Federal Reserve begins its rate-cutting cycle. He reflects on past experiences where rate cuts led to rising long-term yields, raising concerns about the potential for a policy misstep in a rising inflation environment.