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Five fundamentals for the week: Trump selects shadow Fed Chair, BoE sets rates, ISM Services PMI awaited in angst

  • Trump is set to nominate a Fed Governor who could breathe down Chair Powell's neck.
  • The ISM Services PMI is a good gauge of US economic sentiment.
  • Continuing Jobless Claims are of higher importance after the weak NFP.

A Friday to remember – Nonfarm Payrolls included devastating downgrades, leading to the firing of the statistician publishing the data and a resignation at the Federal Reserve (Fed). This opening kicks off our weekly fundamentals section, and there's more in store.

1) Trump to nominate shadow Fed Chair

Fed Governor Adriana Kugler announced she'll step down shortly after missing the rate decision earlier in the week for personal reasons. Kugler's term was scheduled to end only in January, and her early departure may accelerate the race for leading the Fed. US President Donald Trump said he'll nominate a new governor shortly, and that person could be in a pole position to inherit Jerome Powell’s role at the head of the Fed.

Who will it be? There are two Kevins in the race. Punters on Polymarkets are betting on Kevin Warsh, a former Fed official, while economists see Kevin Hassett, who serves at the White House, as the leading candidate.

For markets, that person would immediately become important, making each past and future statement meaningful. It is relatively safe to assume that any candidate would support rate cuts, and could even vote for such a move as early as the September meeting.

When will the announcement be made? Trump tends to steal the headlines – some trade deals were announced just before the Fed decision – but the exact timing is hard to know.

2) ISM Services PMI to test the mood among businesses

Tuesday, 14:00 GMT. The US ISM Services Purchasing Managers' Index (PMI) reflects business sentiment in America's largest sector. After Friday's ISM Manufacturing PMI missed estimates, a drop under the 50-point threshold cannot be ruled out. Such an outcome would trigger further worries about the state of the US economy.

The ISM Services PMI is published after the jobs report this time, thus giving it its own space, and potentially more impact than usual. It is essential to note that the vast majority of the survey was held before the NFP data, so a major decrease is unlikely.

3) Fed's Daly could signal a September cut is far more likely

Wednesday, 20:10 GMT. San Francisco Fed President Mary Daly is not a permanent voting member at the Fed, but she is closely aligned with Fed Chair Jerome Powell, and comments about the NFP and the bank's next moves are of importance. In addition to reacting to the jobs report, Daly may provide remarks about the relatively hot inflation figures, which complicated the picture for the Fed. The latest core Personal Consumption Expenditure came out at 2.8% YoY, pushing the figure away from the Fed's 2% goal.

She is the one of a handful of officials to speak this week which includes several officials, including Governor Lisa Cook.

4) BoE set to cut rates, perhaps express growing worries

Thursday, from 11:00 GMT. The Bank of England (BoE) is widely expected to cut interest rates in its “Super Thursday” decision, and perhaps it will signal that a faster pace of reducing borrowing costs is coming.

So far in this cycle, the BoE has alternated between cutting and pausing, but sluggish UK growth and rising unemployment may push policymakers to be doubtful that inflation would rise.

The BoE publishes its quarterly Monetary Policy Report, which includes inflation and growth projections. These could be downgraded. In addition, the voting pattern in the Monetary Policy Committee (MPC) is of high interest. Dissent is more common in the BoE than at the Fed.

5) Continuing Jobless Claims may gain more ground

Thursday, 12:30 GMT. US Continuing Jobless Claims are gaining importance after the NFP revisions, The headline of the weekly report is Initial Jobless Claims, which were satisfyingly low in recent weeks, but continuing claims may steal the show.

Continuing claims represent people who are on the dole for a long time, and have been nearing the worrying two million mark. Any increase would add to concerns.

Final thoughts

The market narrative has significantly changed after the NFP and its substantial 258K downward revisions. Fear of recession has replaced concerns about interest rates. At inflection points, market correlations change, so trade with care. 

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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