Japan stocks rally, yen slides as PM Ishiba’s resignation sparks fiscal jitters
Investing.com -- Emmanuel Cau, Barclays European equity strategy analyst, said in a note Friday that investors may be overly confident that the Federal Reserve will pursue an aggressive easing path, even as U.S. economic data remain broadly resilient.
“A lot of Fed dovishness is priced in, and inflation/political/fiscal risks keep the bond bears on alert,” Cau wrote in Barclays’ latest Equity Market Review.
Since the Jackson Hole symposium two weeks ago, “rate market pricing has shifted decisively dovish,” Barclays said.
Current expectations point to a Fed cut in September, another in December, and three more by September 2026. But Cau warned that “it is hard to see rate expectations going much lower than they are currently, in our view, as data surprises remain elevated.”
Barclays highlighted that recent employment data, including JOLTS, ADP and jobless claims, “have shown signs of cooling, lending further support to the argument that the labour market is indeed gradually weakening.”
This is said to give the Fed a “good reason to cut, which has helped to keep a lid on U.S. long yields,” the note said. Payrolls data later today, with expectations for a modest 75,000 increase, could reinforce that view.
Still, Cau emphasised that the outlook is far from risk-free. “Bond bears stay on alert, as inflation (watch U.S. CPI next week) and fiscal risk have led to a sharp repricing higher in term premia across the DM rate markets,” he said.
Barclays pointed to multi-decade highs in 30-year bond yields in Japan, Germany, the U.K. and France as signs that risks remain elevated even outside the U.S.