MNI ASIA OPEN: September Fed Cut Seen Increasingly Likely

MNI (NEW YORK) -
 

EXECUTIVE SUMMARY

• MNI BRIEF: Fed's Goolsbee Says Fall FOMC Meetings Are 'Live'
• MNI BRIEF: Bostic Says Weaker Jobs Could Mean Less Patient Fed
• Bessent Urges Fed to Lower Rates by 150 Basis Points or More (Yahoo/Bloomberg)
• Trump says he will name new Fed chair 'a little bit earlier' (Reuters)
• MNI INTERVIEW: Digital Euro Risks Failure-Ex Bank Of Spain Gov

U.S.: July Core PCE Seen At 0.25% M/M Going Into Thursday's PPI 

NEWS

MNI BRIEF: Fed's Goolsbee Says Fall FOMC Meetings Are 'Live'

The fall FOMC meetings are "live" as Federal Reserve officials debate whether inflation is headed down or if tariff effects will keep price pressures persistently high, Chicago Fed President Austan Goolsbee said Wednesday.  "As we go into the fall, these are going to be some live meetings," he told the Greater Springfield Chamber of Commerce in Springfield, Ill. "The hardest thing that a central bank ever has to do is try to get the timing right when there are moments of transition." 

MNI BRIEF: Bostic Says Weaker Jobs Could Mean Less Patient Fed

A persistently weaker-than-expected job market could mean the Federal Reserve might face greater urgency to cut interest rates than it previously thought, Atlanta Fed President Raphael Bostic said Wednesday, following a soft July jobs number and large downward revisions for May and June. The July report "suggests maybe labor markets are a lot weaker than they had been signaling over the previous four or five months. If that's the case, then maybe there is some more imbalance we should be thinking about, and our ability to be patient is much less than it was before," Bostic said.

Bessent Urges Fed to Lower Rates by 150 Basis Points or More (Yahoo/Bloomberg)

US Treasury Secretary Scott Bessent made his most explicit call yet for the Federal Reserve to execute a cycle of interest-rate cuts, suggesting the central bank’s benchmark ought to be at least 1.5 percentage points lower than it is now. “I think we could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” Bessent said in a television interview on Wednesday. “If you look at any model” it suggests that “we should probably be 150, 175 basis points lower.”

Trump says he will name new Fed chair 'a little bit earlier' (Reuters)

U.S. President Donald Trump on Wednesday said he had narrowed down his pick for the next Federal Reserve chair to three or four names and would make the names public "a little bit earlier."

US-RUSSIA: There Will Be 'Consequences' If Putin Doesn't Agree Ceasefire - Trump

US President Donald Trump has characterised his call with Ukrainian President Volodymyr Zelenskyy and European leaders this morning as "very good," adding that he would "rate it a ten, very friendly."  Speaking at the Kennedy Center, Trump claimed that it wasn't his decision to exclude Zelenskyy from Friday's summit with Russian President Vladimir Putin. 

MNI INTERVIEW: Digital Euro Risks Failure-Ex Bank Of Spain Gov

The digital euro project will fail if, as appears likely, a holding limit of 3,000 euros per person is applied, former Bank of Spain Governor Miguel Angel Fernandez Ordonez told MNI, adding that European authorities are over-favouring commercial banks and missing opportunities from financial innovations such as stablecoins.

US TSYS: Belly Outperforms As September Fed Cut Gets Fully Priced

The belly outperformed on the Treasury curve Wednesday as Fed easing prospects incrementally increased.

• The space early was buoyed in early New York trade after Treasury Secretary Bessent said the Fed should consider a 50bp cut next month, and 150-175bp of easing overall.
• Later in the session, the front end of the futures strip reacted favorably to commentary by FOMC's Bostic (view of only one 2025 cut predicated on labor market remaining solid ) Goolsbee (September meeting will be "live").
• This saw a September cut become more than fully priced, with the futures-implied Fed funds rate for that meeting (4.07%) at the lowest since the first days of July.
• Also helping was a modest pullback in implied breakeven inflation, as oil prices remained under pressure ahead of the Trump/Putin talks on Friday.
• Against this backdrop, yields across the curve dropped the most since Aug 1. 5s30s neared the steepest close since October 2021 (which was set Friday at 106.32bp).
• Thursday's data includes weekly jobless claims and PPI, eyed for both price pressures in their own right and helping hone July PCE estimates (after the CPI data, MNI's survey of estimates points to 0.25% M/M for core PCE). Fed speakers include Musalem and Barkin.
• Latest levels: the 2-Yr yield is down 5.2bps at 3.6786%, 5-Yr is down 5.8bps at 3.765%, 10-Yr is down 5.2bps at 4.2365%, and 30-Yr is down 5.1bps at 4.8273%. Sep 10-Yr futures (TY) up 11.5/32  at 112-5.5 (L: 111-23 / H: 112-09)

OVERNIGHT DATA

US DATA: MBA Applications Hold Bounce But Still Depressed

• MBA composite mortgage applications increased 0.1% last week (sa) to consolidate the 33% jump the week prior.
• This consolidation is reflected by both new purchases (0.6% after 26.9%) and refis (-2.9% after 43.5%).
• The 30Y mortgage rate dipped 7bps to 7.02% after the 7.09% the prior week marked its highest since Mar 2024.
• The increase in applications has been impressive considering the climb in mortgage rates from a recent low of 6.13% in late September, although composite applications are still only 48% of 2019 averages (new purchases 63%, refis 32%).
• Within the details, the regular to jumbo spread held its push higher at 4bps, having last week seen the regular rate push above the jumbo rate for the first time since Nov 2023. 

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

US TSYS/OVERNIGHT REPO: Secured Rates Ticked Up Tuesday, May Subside Wednesday

Secured rates ticked up Tuesday as largely expected, primarily on account of Treasury bill settlements ($55B in net cash today). SOFR rose 2bp to 4.36%, with BGCR and TGCR up 1bp apiece. Upside pressure is due to relent today, but could subsequently pick up with $42B in bill settlements on Thursday, followed by $35B in coupon settlements Friday. 

REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.36%, 0.02%, $2804B
* Broad General Collateral Rate (BGCR): 4.34%, 0.01%, $1175B
* Tri-Party General Collateral Rate (TGCR): 4.34%, 0.01%, $1144B

New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume:  $114B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume:  $247B
 

US TSYS/OVERNIGHT REPO: ON RRP Takeup Remains Well Below $100B

Overnight Reverse Repo facility takeup at the New York Fed was basically unchanged Wednesday vs the prior session, at $57.2B (vs $57.5B).

• This marked a fresh 4-month low (Apr 16's tax date saw $54.8B takeup) but it's now the 8th session in the past 9 below $100B, for the first time since February.

BONDS: EGBs-GILTS CASH CLOSE: Bull Flattening Fades Prior Session's Weakness

European yields reversed some of Tuesday's sell-off in a bull flattening move Wednesday.

• In addition to fading the prior session's somewhat unusual sell-off that didn't seem driven by headline/macro developments, Wednesday saw yields pull back in tandem with a retreat in oil prices in anticipation of peace developments on the Russia-Ukraine front.
• Also helping buoy global instruments was US Treasury Secretary Bessent opining that the Federal Reserve should consider cutting rates by 50 basis points in September, and 150-175 overall.
• Data was limited in impact, with German and Spanish final July HICP confirming flash estimates.
• Gilts lagged the Bund rally, with the UK Guardian reporting on potential inheritance tax adjustments in the Autumn Budget.
• Periphery/semi-core EGBs had a constructive session led by BTPs, in a broader risk-on move (10Y BTP/Bund approaches the 2010 low of 75.4bp).
• Thursday's agenda includes UK monthly economic activity / Q2 GDP data, with Eurozone industrial production, GDP, and Employment data also featuring.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.3bps at 1.934%, 5-Yr is down 6.1bps at 2.257%, 10-Yr is down 6.4bps at 2.68%, and 30-Yr is down 7.1bps at 3.228%.
• UK: The 2-Yr yield is down 2.2bps at 3.863%, 5-Yr is down 3.1bps at 4.009%, 10-Yr is down 3.7bps at 4.589%, and 30-Yr is down 3.9bps at 5.428%.
• Italian BTP spread down 1.7bps at 77.1bps / French OAT down 1.2bps at 65.6bps  

FOREX: USD Index Slips Again; Bessent Argues Fed Rate Should be 150bps Lower

• The greenback again traded weaker, making for a second session of losses for the USD Index. Key support into the early August low at 97.945 has given way, opening 97.109 in the short-term ahead of the bear trigger at 96.377. USD weakness came alongside further reports around the leadership and make-up of the Fed into next year. Treasury Secretary Bessent spoke on the interview process, and stated that if the Fed had effective leadership the key rate would be as much as 175bps lower now than it would have been otherwise - further affirming the administration's preference for a low-rates Fed chair once Powell departs next year.
• The list of candidates grew further according to reports, with a number of private sector economists added to the list of those considered, on top of the well known names of Hassett, Warsh, Waller and Bowman.
• GBP rallied further, extending the recent spell of strength and further building on the gains posted after the break of the 50-day EMA on the August BoE rate decision. This firms the speed of the recovery off the 1.3142 pullback low and signals a greater probability of a bullish reversal. For now, S/T momentum is still pointed higher, with the Jul 24 high of 1.3589 the next notable upside level.
• Meanwhile, speculation around the Trump-Putin meeting in Alaska at the end of the week continues to build. Following a call with European leaders today, it was disclosed that Trump is set to pursue an immediate ceasefire in the conflict - at which point more sincere negotiations and talks can begin over a conclusion to the war. Territory remains the key issue, with Kyiv ruling out the handing over of eastern territories, and Putin requiring some concessions as a result of his multi-year special operation. Oil and risk markets remain sensitive to the issue, with Trump warning of "very severe consequences" if no interim agreement is reached on Friday.
• Australia jobs data is the highlight Thursday. With May and June employment gains disappointing, the July data will be monitored closely for signs that the labour market has turned. Q2 employment averaged 28.8k/month up from Q1's 1.4k but slightly lower than Q2 2024's 32.2k. Consensus expects a 25k gain in July after June's +2k, slightly below the Q2 average. The unemployment rate is forecast to decline 0.1pp to 4.2%, returning to the Q2 average.

DATA/EVENTS CALENDAR

Date	GMT/Local	Impact	Country	Event
14/08/2025	0130/1130	***	AU	Labor Force Survey
14/08/2025	0600/0700	***	GB	UK Monthly GDP
14/08/2025	0600/0800	***	SE	Final Inflation Report
14/08/2025	0600/0700	**	GB	Trade Balance
14/08/2025	0600/0700	**	GB	Index of Services
14/08/2025	0600/0700	**	GB	Index of Production
14/08/2025	0600/0700	**	GB	Output in the Construction Industry
14/08/2025	0600/0700	***	GB	GDP First Estimate
14/08/2025	0600/0800	***	SE	Final Inflation Report
14/08/2025	0645/0845	***	FR	HICP (f)
14/08/2025	0800/1000	***	NO	Norges Bank Rate Decision
14/08/2025	0900/1100	**	EU	Industrial Production
14/08/2025	0900/1100	***	EU	GDP (p)
14/08/2025	0900/1100	*	EU	Employment
14/08/2025	1230/0830	***	US	Jobless Claims
14/08/2025	1230/0830	**	US	WASDE Weekly Import/Export
14/08/2025	1230/0830	***	US	PPI
14/08/2025	1230/0830	***	US	PPI
14/08/2025	1430/1030	**	US	Natural Gas Stocks
14/08/2025	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
14/08/2025	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
14/08/2025	1800/1400		US	Richmond Fed's Tom Barkin
15/08/2025	2350/0850	***	JP	GDP
15/08/2025	0200/1000	***	CN	Fixed-Asset Investment
15/08/2025	0200/1000	***	CN	Retail Sales
15/08/2025	0200/1000	***	CN	Industrial Output
15/08/2025	0200/1000	**	CN	Surveyed Unemployment Rate M/M