In Search of Recovery Power: Fed Rate Cut Bets and PMI in Focus

Market Compass

In Search of Recovery Power…

• Global markets continue to focus on corporate balance sheets while closely monitoring the developments regarding tariffs.
• In addition, market participants are increasingly pricing in possible rate cuts by the Fed. According to the CME FedWatch Tool, the probability of a 25 bps rate cut in September is over 90% and three such rate cuts by the end of the year are not ruled out. This would imply a rate cut at every Federal Open Market Committee (FOMC) meeting for the rest of the year.
• Equity markets extended their rally for a second day after a sell-off in the wake of Friday’s employment data that pointed to the possibility of a recession in the US in the coming period, with investors arguing that a “buy the dip” strategy makes sense. We will see if they are right, but we argue that we should not be in a hurry for excessive optimism.
• On the digital assets side, the outflow in spot ETFs is remarkable. Although major cryptocurrencies have managed to recover some of their recent losses, the move seems to need a new catalyst to maintain its upside position.
• From this perspective, we can say that in order for the uptrend to continue, new data will be needed to ensure that the FED is really serious about cutting interest rates. Therefore, it will be useful to closely monitor the PMI data, which will be the only important macro indicator of the week.
• To summarize the short-term story, we can say that the recovery after Friday’s sharp losses gave way to a minor correction during Asian trading, while during the European session, we saw that the lively risk-taking motive helped to erase these losses.
• We can expect PMI data to play a decisive role in the climate for the rest of the day.

ISM Services PMI: The Purchasing Managers’ Index (PMI) is a diffusion index based on surveyed purchasing managers excluding the manufacturing industry. Conducted by The Institute for Supply Management (ISM), this survey of approximately 300 purchasing managers asks respondents to assess the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries and inventories. It is usually published monthly on the third business day after the end of the month, with a score above 50.0 indicating that the sector is expanding and below 50.0 indicating contraction. In general, a lower-than-expected ISM Services PMI is expected to have a positive impact on digital assets by pricing in expectations regarding the monetary policy course of the US Federal Reserve (FED). However, in some cases, it may also lead to pricing based on the strength of the economy. In this case, figures above expectations have a positive effect on digital assets.

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