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The recent market sentiment has shifted dramatically, with bulls taking a hit and now rumors swirling about potential pain for shorts. Derivatives traders are increasingly confident that the Federal Reserve will cut interest rates twice this year. Despite a stronger-than-expected June non-farm payroll report, which showed robust job growth, downward revisions in previous months and a rise in unemployment have kept expectations high for Fed intervention.

Derivatives markets now reflect a 100% likelihood of two rate cuts in 2024, with a strong probability of the first cut coming as soon as September, estimated at around 76%. Analysts like Jeff Klingelhofer from Thornburg Investment Management believe there's still room for U.S. bonds to rally, citing Federal Reserve Chairman Jerome Powell's inclination towards initiating a gradual easing cycle.

Concerns over inflation risks and signs of economic slowdown are bolstering expectations for monetary easing. Jeffrey Rosenberg, portfolio manager at BlackRock, emphasized the importance of upcoming inflation and economic data in solidifying expectations for a rate cut in September.

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