Is there too much complacency out there,
do you think?
>> I certainly think that is the the case.
I mean, looking at hedge funds kind of
betting on the shorting the VIX, the
most that we've seen in three years
really does suggest that they expect
this calm to persist. I think we expect
greater volatility if we do see some of
this economic data materially surprised
to the upside or the downside just given
that equities have really been
predicated on the Fed easing coming
through quite materially. We have about
five rate cuts priced in by the July
meeting. And this is occurring against a
backdrop where the inflation uncertainty
still remains kind of un unknown because
if we think about you know yes we're
starting to see goods inflation that's
expected to grind higher over the coming
months. But last month the super core
inflation measure is actually what
surprised to the upside. If we start to
see signs of services inflation
reacelerating or wages accelerating, I
think that could put, you know, some
some cold water on some of these
expectations for Fed market easing bets.
>> Yes. And so, let's think about where we
might be by Friday or what Friday's
payrolls report might tell us, Laura,
because do you think this is going to
have a real bearing on September rate
cut expectations or is it going to be
more about the medium-term? Because uh
after we heard from Terrone Powell at
Jackson Hall, Jackson Hall, we we we
increased expectations of a Fed rate cut
in September and the market is probably
quite attached to those expectations
because of what we heard from the
chairman. Um so is it that that's going
to be the focus for markets or is it
going to be all those other rate cuts
that that the market has priced in?
>> I think it's going to be a combination
of both. And I think to your point
around will the payrolls really be the
determining factor for the September
17th Fed cut, I think it depends on the
magnitude of the miss or the beat that
comes through. I think last month's
payrolls told us that the labor market
is on much more precarious footing given
the significant downward revisions. So
if we do see a meaningful upside
surprise, perhaps then that will start
to question whether the Fed will be in a
position to cut beyond that September
rate cut with markets pricing in about
88% because the Fed doesn't want to
necessarily cut into, you know, still
hot economy. There's certainly
implications on the back of that. But if
we do see a material miss to the
downside, perhaps then we're going to
see not just a 25 basis point uh cut
priced in for September, but perhaps
that you know 50 25 debate will come
back to the focus because if we look
when they last surprised with 50 basis
points, what precluded that, what
preceded that was really three
consecutive months of weak payrolls
print. So, as well as the payroll
sprint, I think it's a number of the key
labor market indicators as well this
week to watch for that could guide that
September cut and further out because
there is this greater scrutiny certainly
on that payrolls data more recently.
>> Yes. And so, are you expecting given the
uh the way that payrolls reports have
gone recently, are you expecting this
one to be another one that that
disappoints? We we've seen over the past
couple of months it was the the
revisions and the fact that we thought
we had jobs that then turned out not to
be there. That was the thing that that
sort of disappointed and spooked
markets.
>> Well, our expectation is that we're
fairly in line with consensus that we
could see 100,000 job gains in August,
but we'll be watching for the more
stable metric around the unemployment
rate. Right now, 4.2% if it were to go
to 4.4%. I think in this backdrop where
there's supply constraints coming
through from immigration restrictions,
the Fed is really closely monitoring
this key gauge. And I think that could
really be what to watch for to guide
markets. But as well look to, you know,
the ADP print this week. You know,
that's probably going to have
disproportionate importance given the
scrutiny on the BLS data. And if we look
at given the res revisions, the ADP
print has actually been a more accurate
gauge than historically it has been. So
maybe market attention will turn there.
Okay.