Interest rate decisions in the UK and US overshadow next week, with markets seemingly desperate that the respective central banks in each country start to move them down again sooner rather than later.
The Bank of England is the first to report on Thursday. The last meeting of the rate-setting committee saw rates kept on hold at 5.25% by a majority of 7-2.
UK inflation has now dropped to 2%, in line with the bank’s long-term target; but services sector prices have remained stubbornly high and economists suggest hawks on the Monetary Policy Committee might want some more data before committing to a cut.
Even so, market projections are 50/50 for a 0.25% cut next week and the rash of lower-priced fixed mortgages now being offered points to the banks thinking a cut is imminent.
Fed and non-farm payrolls
In the US, like the UK, the options seem to be to wait and see for one month or go now.
Market indicators suggest September is the more likely option to be taken by the FOMC next Thursday with expectations thereafter for one or even two more reductions before the end of 2024.
Fed Funds rate is currently 5.25%-5.50% and futures are pricing in a 25 basis point rate cut in September, with 66 bps of rate cuts expected before the year-end.
One piece of data the Fed might wait for is non-farm payrolls for July out on Friday.
The US economy added 206,000 jobs In June, in line with expectations, but May and June's numbers were revised lower by a combined 111,000 jobs.
The June unemployment rate also increased to 4.1% from 4%, while average hourly earnings increased by 3.9%, the lowest monthly rise since June 2021 and adding to the narrative that the US economy is cooling.
For July, the preliminary expectation is for 185,000 jobs to have been created and the unemployment rate to remain stable at 4.1%.