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Morning Bid U.S.

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets, Reuters Open Interest

Spurred on by the U.S. President and Treasury Secretary, expectations for interest rate cuts are reaching a fever pitch, with markets now starting to price in a small chance of a half point cut as soon as next month as they await today's producer price report.

On Wednesday, Scott Bessent said downward revisions to the U.S. payrolls meant the Federal Reserve needed to play catch-up. He said there was a "very good chance" of a 50 basis point reduction in September and that rates should "probably" be 150-175 bps lower.

Wall Street zoomed to new records on Wednesday, but stock futures stepped back a touch ahead of the PPI report but two-year Treasury yields continued to stalk three-month lows. Even though many Fed officials are still cautious about the prospects for a half point cut, Wall Street banks are starting to forecast as many as three cuts this year, arguing softer jobs growth, a lack of "pass-through" from tariffs to consumer prices, and a new appointee to the Fed board will tip the balance.
Thursday's producer price update for July will be important as details feed into the Fed's favored PCE inflation gauge. Annual headline and core PPI inflation are expected to pick up to 2.5% and 2.7%, respectively. Meantime, President Donald Trump said his pick for the next Fed Chair would be named "a little bit earlier" and he'd narrowed it down three or four names, despite indications earlier on Wednesday that as many as a dozen names had been considered.
Elsewhere, the inflation picture softened further given this week's slide in crude oil prices to two-month lows ahead of the critical U.S.-Russia summit in Alaska tomorrow. Japan's yen jumped to three-week highs, knocking the Nikkei stock index back sharply from record highs, as Bessent also said the Bank of Japan was "behind the curve" in tackling inflation there. Sterling hit six-week highs on the euro after the release of above forecast UK GDP data. Finally, riffing off the week's heady surge in risk appetite and rate cut bets, Bitcoin jumped to a new record high at $124,481.

In today’s column, I’ll discuss why political pressure on government statisticians and private forecasters risks sending markets down a rabbit-hole.

I’d love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com.

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Today's Market Minute

U.S. President Donald Trump threatened "severe consequences" if Russia's Vladimir Putin does not agree to peace in Ukraine but also said on Wednesday that a meeting between them could swiftly be followed by a second that would include the leader of Ukraine.
The announcement of the results of a U.S. probe into pharmaceutical imports and new sector-specific U.S. tariffs likely remains weeks away, four official and industry sources said, later than initially promised.
Investors are increasingly pricing in a "higher for longer" interest rate environment in the euro zone, with a potential cut in March seen as a temporary blip before borrowing rates climb back above 2%.
OPEC+ is widely believed to be pivoting from trying to bolster prices to rebuilding market share, but a recent decision by Saudi Arabia seems to be at odds with this strategy. Read the latest from ROI columnist Clyde Russell.
It's widely believed that U.S. President Donald Trump's insistence on lower interest rates is what's making life most difficult for Federal Reserve Chair Jerome Powell and his colleagues. But ROI columnist Jamie McGeever argues that what's causing the biggest headache for Fed officials is probably more prosaic: economic data.

Trump's data war risks creating false calm

Political pressure on government statisticians and private forecasters risks sending markets down a rabbit-hole, which could suppress volatility today but lead to seismic reality checks in the future.

U.S. President Donald Trump has side-swiped both private and public sector economists this month, firing the Bureau of Labor Statistics boss for what he described as "rigged" jobs data and then lambasting Goldman Sachs for tariff-related research he didn't agree with.

These moves seem alarming, even if there are some mitigating factors.

Trump is hardly the first person to criticize BLS payrolls data. It has been under scrutiny for years, not because of fears of bias, but because of low survey response rates and delays, which have often resulted in large changes to past data. The most recent report contained one of the biggest downward revisions in decades. The BLS can argue that it has suffered from years of underfunding, but it's still not a good look.

Graphics are produced by Reuters.

What's more, similar questions about data collection have been lobbed at the BLS regarding its compilation of monthly consumer and producer price reports, which are critical now in assessing the impact of Trump's tariff rises on inflation.

These statistics, along with the U.S. employment report, are the most important monthly updates for financial markets, mainly because they play a pivotal role in Federal Reserve thinking, given its dual mandate to maintain maximum employment and stable prices.