Employment Data Fails to Create a New Story, What About Recession Scenarios?

On Friday, US employment data supported a slowdown in the markets. This development increased expectations for a rate cut at the Fed meeting on September 18. According to CME data, a 25 basis point cut expectation is 70% likely, while a 50 basis point expectation is 30% likely.

So why did the markets experience a volatile movement instead of a positive reaction? There are two different views on this issue. According to the first view, this situation was already priced in in the markets where interest rate cuts were definitely expected. In other words, employment data did not create a new story. The second view suggests that investors worried about a recession exited the market.

Within the framework of these views, although there may be volatility in the short term, the day when money from high-yielding bonds and bills will return to the markets in the long term is not as far away as it used to be.

This week, major institutions such as Citibank and Deutsche Bank have sent messages that the FED may cut rates by 50 basis points in September. However, if you ask me, the FED, which has been cautious and data-driven for a long time, will proceed step by step and carefully when implementing rate cuts. Therefore, instead of a sudden and large cut such as 50 basis points, they will prefer a more gradual reduction model starting with 25 basis points.

I don’t think it’s healthy for such big players to expect the FED to make a 50 basis point cut. Markets may “greenwash” and experience optimism with the expectation of a 50 basis point cut instead of 25. However, as September 18 approaches, the market may realize that a 25 basis point cut is more likely and this expectation may create headwinds.

Another important development will be the live broadcast debate between US presidential candidates Trump and Harris. The broadcast will take place in the early hours of September 11, Turkey time.

If the moderators’ questions include the leaders’ views and plans on cryptocurrencies, this will be very important for the market. If cryptocurrencies are not on the agenda, who stands out in the polls depending on the performance of the leaders will resonate in the markets.

Unless a constructive and supportive approach to cryptocurrencies comes from Harris, cryptocurrency markets are more likely to react positively to scenarios where Trump gains power.

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