US Treasuries continued to rise, with policy-sensitive two-year bond yields hitting a 14-month low, in line with market expectations for an interest rate cut by the Federal Reserve rising after Wednesday's decision.
Market players now expect three rate cuts this year, up from the previous two.
Broader risk sentiment was fueled by the weekly US Jobless Claims data report hitting a near-year high, coupled with a contraction in PMI manufacturing activity.
We at Saracen Markets think job growth will slow in the government jobs report for July, which will be released tonight, with the unemployment rate expected to remain steady at 4.1%.
The 'Hard Landing' scenario is seen as becoming more and more likely. If tonight's NFP jobs report is seen as disappointing, the market sentiment situation could be volatile. If the unemployment rate rises to 4.3% with NFP employment below 100,000, it is seen to trigger significant market turmoil.
In commodity markets, oil prices rebounded after Thursday's decline, driven by concerns that tensions in the Middle East could disrupt supplies. Gold prices also rose amid increased economic uncertainty.
The labor market data that has been reported this week has shown the fragility of the US economy. With an increase in the "Initial Jobless Claims" data report and the production PMI data shrinking, the Fed's dovish turn appears to reflect growing concerns about the economic outlook.
Interest rate expectations now indicate that market players fully expect a series of cuts, with a total of nearly 70 basis points of reductions expected by the end of the year.
The Fed is clearly reacting to a weakening economic landscape. Tonight's US jobs report and next week's CPI data look to be very important. A positive outcome could strengthen the Fed's current trajectory, while any negative shocks might accelerate their accommodative measures.
