US rate cut pricing sinks 20bp as growth revised upwards in Q2

Following the biggest 12-month revision in NFP data, investors are paying very close attention to weekly initial jobless claims prints, looking for early signs of whether the ‘no hiring’ will turn into the rather more concerning ‘no firing’.

So far, so good. Today’s print is the second in a row to surprise to the downside, one of the lowest since February, suggesting that a drastic spike in early September (264k, a 4-year high) has indeed been largely driven by a significant seasonal-based increase in Texas.

At the same time, Q2 GDP growth was revised to an impressive 3.8%. Both pieces of information support the slightly less dovish tone presented by Chair Powell at the GPCC Outlook Luncheon in Warwick.

The pricing of rate cuts for this year has fallen by 5 bp. today, with the market seemingly unconvinced about cuts at each of the upcoming meetings in October and December. The probability of two cuts this year has decreased by 20 pp. to roughly 50%.This supports the dollar, which gained 0.5% against the euro, bringing the EUR/USD pair below 1.17.