It is only Thursday but I would say that we’re pretty much at the end of the week already. And it is all to do with it being a holiday-shortened week in the run up to US Independence Day over the weekend.
The US bond market will close early today but the stock market will run as per usual. However, both will be closed tomorrow. So, that will make for a quieter final stretch after the jobs report today.
Given the emphasis placed on the Fed outlook in recent weeks, the labour market numbers today will be of much importance.
The headline non-farm payrolls figure is expected at 110K in June, moving down from 172K in May. Meanwhile, the unemployment rate is expected to keep steady at 4.3%.
As things stand, traders are not really anticipating the Fed to move on policy ahead of the summer. However, the odds of a 25 bps rate hike do increase materially to ~66% for September. Meanwhile, a full 25 bps rate hike is now priced in by October at the earliest with ~36 bps of rate hikes priced by year-end.
So, that provides the battle lines on how the odds may shift and the limits on how markets will move according to what we see from the labour market data.
The economic calendar may not offer much after the US jobs report in ending the week. However, US-Iran developments will continue to stay in focus but more so on how things are progressing with the Strait of Hormuz. The technical talks yesterday don’t appear to be going anywhere and will only resume again next week. The pace of how things are going is definitely not ideal to say the least but we’ll see.
We’re now in the midst of Stage 4/5 on the Strait of Hormuz situation:
Besides that, do keep an eye out for potential Japan intervention on the yen currency come tomorrow. It is being reported that Tokyo officials have shifted to “ambush tactics” in trying to intervene as reported here.
From my view, that is just a terrible way to approach things as I always feel intervention should be managed in a way to send the best and most effective signal so that markets can amplify that instead. But who am I to say, as it is ultimately up to Japan on how they want to manage the situation.
My thoughts from before:
“It might sound counter-intuitive to not want to act during low liquidity periods, but there’s a certain nuance to it. The main thing about intervention isn’t so much so as the money but more so about the signaling. You want enough players in the market to get that signal and amplify it, so as to get the idea that “we shouldn’t mess with the MOF/BOJ”. Otherwise, that signal can get lost in translation if there isn’t enough liquidity follow through. And at the end of the day, it might just be passed off as more noise than an actual leading signal to traders.”
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