Watch the Headlines: The Reaction to News that Matters
The old trading adage that says “the reaction to news is more important than the news itself” is even more relevant in today’s market as central banks embark on a rate cutting path.
Good News vs. Bad News
Another way oif saying it is whether good/bad (economic) news is good/bad news or is good/bad news bad/good news for market.
In other words, markets will be weighing whether good US economic news means a better chance of avoiding a recession with a soft landing vs. positive data slowing the pace of rate cuts.
In any case, there should be continued volatility around US economic releases until there is a clear consensus of where the economy is heading.
In this regard, the focus has shifted from a focus on inflation one on the US jobs market, which has shown some signs of softening.
All Eyes on the Next Jobs Report
This is setting up the release of the August employment report on September 6 to see if it confirms or rebounds from the soft July reading.
The focus of the reaction will be on rate cut expectations where economists have been leaning towards 75bps cuts by the Fed for the rest of the year vs. markets pricing of 100 bps. It will also influence whether the market puts a risk of a 50bps cut at the September 16-17 FOMC meeting vs. a generally expected 25bps reduction in rates.
In any case, stay on top of the economic data release, fasten your seat belts as it will be the reaction to the news that matters.
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