In briefWhat you need to know
- The US labor market weakened clearly in July, with a negative jobs number and downward revisions to previous months.
- That reduces pressure for a quick rate hike, but doesn't remove the risk as long as inflation stays above target.
- For futures traders, CPI on Wednesday and PPI on Thursday matter more than the jobs number itself for the next big directional move.
- Watch the 2-year yield, 10-year yield, the dollar, Nasdaq and gold in particular after the releases.
Last week's US jobs data changed the market's tone, but it didn't settle the rate picture. The labor market looked weaker than expected, with a drop of 23,000 jobs in July and clear downward revisions to the preceding months. At the same time, unemployment fell to 4.1%, partly because more people left the labor force. That paints a picture more complicated than any single headline.
For traders, the point is that weak jobs data normally points toward lower rates, lower government bond yields, and support for growth stocks. This time, the picture is less clean. The Fed still has an inflation problem, and the market knows the central bank can't necessarily lean heavily on the labor market if price pressure keeps running too high.
Inflation carries the most weight right now
The most important thing this week, then, isn't just what the jobs data says about growth, but whether the inflation numbers confirm or contradict the idea that price pressure is easing. According to this week's release schedule, US CPI comes out Wednesday, 12 August, followed by PPI on Thursday, 13 August. Both figures are released before Wall Street opens and can trigger sharp moves in rates, the dollar and index futures.
If CPI comes in lower than expected, the market will likely price in less need for a September hike. That could support Nasdaq, the S&P 500 and gold, especially if short-term US rates fall. If CPI instead surprises to the upside, the market could quickly go back to pricing in a more aggressive Fed, even after a weak jobs number.
What futures traders should watch
The first reaction after inflation data often shows up in the 2-year US yield. It's more directly tied to Fed expectations than the 10-year. After that, watch whether the 10-year yield follows along, or whether the yield curve changes shape. A broad-based rise in yields alongside a stronger dollar is usually heavier for Nasdaq than for more defensive parts of the market.
For active traders, it's important to distinguish between the first jolt and real acceptance. Many CPI days see a sharp initial move, followed by a full reversal once liquidity normalizes. That's why overnight levels, VWAP, the first 15-minute range, and volume around the premarket high/low should be used alongside the macro data.
The riskiest thing this week is concluding too early. A weak jobs number can bring relief to stocks, but an inflation report above expectations can flip the picture quickly. That makes this week especially relevant for traders who trade ES, NQ, ZN, ZB, gold and dollar-related markets.
Our take is that the labor market has cooled the rate jitters, but hasn't removed them. Inflation will decide whether the Fed gets room to wait, or whether the market has to price in another round of tighter policy.
Risk note
This is general market commentary, not personal investment advice. Futures are leveraged instruments carrying a high level of risk.