Bond and currency traders are gearing up for Friday’s US jobs report, which will solidify views on the Federal Reserve’s policy and determine the near-term direction of interest rates.
A series of weaker-than-expected economic data released this week strengthened market bets on the dovish stance of the Federal Reserve, causing the yield on 30-year US Treasuries to retreat from the 5% mark and pushing short-term US Treasuries higher. The US dollar has remained firm against most currencies in recent days, although it has declined by about 8% so far this year.
A 25 basis point rate cut by the Federal Reserve at its September 16-17 meeting is a done deal. Investors will be looking at the data to be released on Friday to get a sense of how the central bank will set monetary policy in the coming months. With expectations of a gradual economic slowdown dominating in recent weeks, stronger-than-expected data could come as a surprise to the market and reinforce some investors’ recent bearish sentiment.
“The bar for the Fed to cut rates is very low,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. But because the market has already priced in a series of rate cuts over the next few months, “the bigger risk is that if we get a strong report, yields will rise.”
The U.S. Labor Department’s August jobs report is expected to confirm the hiring slowdown shown in this week’s data. A Bloomberg survey shows economists expect nonfarm payrolls to increase by 75,000 in August and the unemployment rate to rise to 4.3%, the highest level since 2021.
The prices of contracts used to bet on the Federal Reserve’s policy direction basically reflect a 100% chance of a 25 basis point rate cut later this month. It is expected that by the end of next year, the Federal Reserve will make nearly five rate cuts of 25 basis points each, bringing the federal funds rate down from the current range of 4.25% to 4.5% to around 3%.
This outlook has depressed short-term Treasury yields, although fiscal concerns have pushed up long-term Treasury yields. The two-year Treasury yield, which is most sensitive to changes in Federal Reserve policy, is currently around 3.6%, close to its lowest level since May.
Technical analysis:
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Gold: The ADP data released yesterday remained weak, which has led the market to have a negative expectation for tonight’s non-farm payroll data. There are two scenarios for intraday operations. Before the non-farm payroll data release, if the price rises, you can consider chasing a momentum break. After the non-farm payroll data release, keep an eye on the liquidity below 3540. If it is similar to yesterday’s ADP data and you short at the low, be alert for rebound signals. For detailed positions, please consult the plugin.
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The Nasdaq: Weak employment data will strengthen expectations of subsequent interest rate cuts by the Federal Reserve, providing a bottoming support and boost to the Nasdaq. Today, we will focus on the opportunity for a bullish rebound signal after the price falls back near 23,600 and liquidity is swept up. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Due to the possibility that OPEC may further ease production cuts at the weekend meeting, the uncertainty of oil prices has increased recently. We suggest that short-term investors remain on the sidelines for now and wait for the risk period to pass. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key economic data and events to focus on:
20:30 US August Non-Farm Payrolls Change (Seasonally Adjusted)
