SOUTH KOREA: South Korea PMI Manufacturing Pours Cold Water on Calls for Rate Cuts.

• July’s much-weaker-than-expected employment report capped a series of cooling labor market indicators this week that have put the term “recession” firmly into the discourse, by way of triggering the “Sahm Rule”.
• Even before from the weak NFP payroll gains and surprisingly large jump in the unemployment rate, this week's data included softer employment cost data, higher job openings, and the highest continuing jobless claims since November 2021. ·
• Meanwhile, following on from last week's solid Q2 GDP reading, the latest activity data hasn't been encouraging, with a sizeable ISM manufacturing survey miss (lowest since Nov 2023) this week.
• Recession talk may be overwrought, and requires further confirmatory evidence, not least because there may have been some weather-related effects at play in the payrolls report.
• But there is no doubt that the Federal Reserve is under increasing pressure to cut rates as it is seen to be behind the curve, only days after Chair Powell indicated a September rate cut “could be on the table as soon as September”, and the Committee changed its policy statement to acknowledge increasing concern over fulfilling its full employment mandate (MNI meeting review here).
• By the end of last week, markets had priced a first 25bp cut for September, with a total of almost 3 cuts seen by year-end. As this week concludes, markets are leaning toward a 50bp September cut (with the possibility of an inter-meeting move), and 100 to 125bp in total reductions through year end.
• Until the July CPI data on August 14, there won’t be much more evidence to go on. Next week’s data calendar is very light, but a failure by July’s ISM Services index to rebound as expected from June’s contraction will be taken as another signal that recession may be nigh.

• RES 4: 1.3977 High Oct 13, 2022
• RES 3: 1.3951 1.0% 10-dma envelope
• RES 2: 1.3899 High Nov 1 and a key resistance    
• RES 1: 1.3889 High Aug 1
• PRICE: 1.3845 @ 15:40 BST Aug 2
• SUP 1: 1.3766 Low Aug 1   
• SUP 2: 1.3766 20-day EMA 
• SUP 3: 1.3718 50-day EMA
• SUP 4: 1.3367 Low Jul 17 

Trend conditions in USDCAD remain bullish and Thursday’s gains reinforce this condition. Recent gains resulted in a break of 1.3792, the Jun 11 high, and more recently, a print above key resistance at 1.3846, the Apr 16 high. The trend condition is overbought, however, the break of 1.3846 strengthens the bull theme and opens 1.3899, the Nov 1 ‘23 high and a key resistance. Firm support lies at 1.3718, the 50-day EMA. 

Another Fed rate call change, this one by Nomura - who are still a little more conservative on the pace and magnitude cuts than some others in the wake of the July employment report. They now see:

• Three consecutive 25bp cuts through end-2024 (previously had seen cuts in just Sept and Dec)
• Four 25bp cuts quarterly in 2025
• "A 50bp rate cut in September is possible, but would only become our base case if evidence of layoffs pick up further or financial conditions tighten unexpectedly. If acute stress materializes, an easing cycle could resemble past recessions, including larger easing increments."