- Data from the US on Thursday revealed a drop in unemployment claims to 238,000 last week.
- There is a 58% chance that the US central bank will cut rates in September.
- The Swiss National Bank cut rates for the second time on Thursday.
Interest futures fell on Thursday as Treasury yields rose along with the dollar amid a decline in rate cut expectations. At the same time, a second rate cut from the Swiss National Bank highlighted the growing divergence in policy outlooks between the Federal Reserve and other major central banks.
US jobless claims (Source: US Labor Department)
Data from the US on Thursday revealed a drop in unemployment claims to 238,000 last week. This was a 5,000 drop from the previous reading of 243,000, indicating strength in the labor market. However, continuing claims reached a new high, showing unemployment was slowly rising.
Still, the report led to a decline in Fed rate cut expectations, which boosted the Treasury yields and weighed on interest futures. There is a 58% chance that the US central bank will cut rates in September.
Meanwhile, the Swiss National Bank cut rates for the second time on Thursday, shining a spotlight on the Federal Reserve, which remains cautious. The European Central Bank and the Bank of Canada have also started their rate-cutting cycles, which leaves only a few major central banks that have not started lowering borrowing costs. The delay in the Fed has helped support the dollar and Treasury yields.
Policymakers have maintained a slightly hawkish tone, with Neel Kashkari saying it could take two years to bring inflation back to the central bank’s target. Such comments raise fears that the US will have high interest rates for an extended period.
However, despite the forecast of just one rate cut this year, market participants remain hopeful that the Fed will cut twice. This hope stems from recent poor economic data, including retail sales. On Tuesday, sales figures came in lower than expected, and those for the previous month were revised lower.
Moreover, Goldman Sachs reduced its US GDP growth estimates for Q2 from 2.0% to 1.9% after Q1 figures fell to 1.3%. A slower economy will eventually push the Fed to start cutting interest rates. However, for now, policymakers are awaiting more data to prove that the economy and inflation are declining. The next big report on Friday will reveal business activity levels in the manufacturing and services sectors.
