Weak U.S. Data Reduces Pressure for Fed Rate Hikes

According to Barclays' strategy assessments, the slowdown in economic activity and inflation in the US reduces pressure on the Federal Reserve to raise interest rates further, which may limit bond yield and dollar gains and support technology and momentum stocks.

Bank strategists, led by Emanuel Kaus, have stated that under conditions of cooling US economic growth and inflation, the Fed will not accelerate rate increases. In their assessment, the current environment may be particularly favorable for technology companies and growth-oriented stocks.

Against the backdrop of recent economic data, global stock markets have risen to new record levels. US employment data showed weaker-than-expected results, though Barclays notes that certain statistical factors influenced the indicator. Meanwhile, consumer and producer price data published this week showed that inflationary pressures are no longer intensifying.

According to Barclays' assessment, the aggregate data indicates that economic growth is slowing from strong levels, while inflation is moderating.

The bank views this shift as a particularly supportive factor for fixed-income assets. Nevertheless, bond yields remain close to recent highs, which Barclays attributes to oil price volatility and investors' anticipation of the Jackson Hole symposium planned for the end of the month.

Given the changed market environment, Barclays' fixed-income analysts have temporarily closed their recommendation on 5y5y SOFR.

In the bank's assessment, a less restrictive Fed policy will also give Japan's central bank the opportunity to continue normalizing monetary policy at a moderate pace while maintaining room for maneuver to support the yen. This would reduce the risk of rapid unwinding of carry trade positions.