MUFG(US:MUFG) Zhi Tong Cai Jing·2025-08-05 05:41Core Viewpoint - MUFG reports that the significant underperformance of U.S. non-farm employment data in July has led to increased market expectations for interest rate cuts by the Federal Reserve within the year [1][4] Group 1: Employment Data and Economic Indicators - The July non-farm employment report showed only 73,000 jobs added, with prior months' data revised down by a total of 258,000 jobs, marking a historic downward revision of 90% [4] - The ISM manufacturing index's employment component fell to 43.4, indicating weakened labor demand, while the ISM price component dropped from 69.7 to 64.8, suggesting no significant inflationary pressure [4] Group 2: Market Reactions and Predictions - The interest rate futures market is pricing in approximately 64 basis points of easing by the end of 2025, with a 90% probability of a rate cut in September [1][5] - There is a growing expectation for at least two rate cuts by the end of the year, with traders increasingly betting on consecutive cuts in September and October [1][5] Group 3: Impact on Financial Markets - Gold prices have rebounded from around $3,270 to nearly $3,400 since the end of July, driven by rate cut expectations [5] - The U.S. dollar index fell by 0.8% on a single day, with the dollar depreciating against the yen by 2.2%, marking the largest drop since April [5] - The yield curve for U.S. Treasuries has steepened, with the 2-year Treasury yield dropping over 25 basis points, the largest decline since December 2023, indicating a bullish sentiment in the bond market [6] Group 4: Political Influences on Monetary Policy - Political dynamics in the U.S. are shifting towards supporting rate cut expectations, with President Trump exerting pressure on the Federal Reserve and calling for the dismissal of the Bureau of Labor Statistics chief [7] - The extreme weakness in the July employment report supports the argument for a rate cut, with some Federal Reserve officials advocating for immediate action [7]