Hello traders,
Hope you all had a great weekend and are enjoying the thrilling US Open Tennis tournament.
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WEEKLY LEVELS AT THE END OF THE POST
This past Friday, the August NFP printed 22,000 versus 75,000 consensus, with large downward revisions that took June to a net loss of 13,000. Unemployment rose to 4.3 percent, the highest since 2021. Rates responded first. The 10-year slid from 4.31 percent intraweek to 4.09 percent into the close as both flight-to-quality and policy path repricing. Equities embraced the old regime where bad macro is good beta. Fed funds futures now imply a near-certain September cut, a nontrivial probability of 50 basis points, and about three 25s by December. Forward easing has loosened financial conditions in advance. That pins the Fed. Failing to validate would be a de facto hike.
However, single data prints are noisy and revision-prone. The move in term structure was clean but fast. Trend confirmation demands more than one release.
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Note: Past week’s trade-recap is now on X.
The Fed’s choice architecture
Two risks pull in opposite directions. Tariff pass-through pushes prices up. A faltering labor market pulls activity down. Powell at Jackson Hole framed tariff effects as a one-time level step, not a persistent inflation engine. That framing creates space to prioritize employment softness. Waller argued to cut now to support jobs while inflation drifts toward target. Bostic said risks across mandates have come back into balance. Williams pointed at slowing growth and argued for a glide toward neutral. Recession avoidance over a rapid return to 2 percent. Estimates of job-growth breakeven may have fallen to 30,000 to 80,000 per month, but the direction of travel and negative revisions dominate the Fed’s signal set.
Only caveat: Tariff dynamics can mutate from level effects into persistence if expectations shift or if supply chains reprice in waves.
Market narrative
This economy feels like late cycle without the panic. Demand is cooling, margins compressing at the edges, and hiring managers are twaddling their thumbs. Goods prices keep bleeding lower. Services pressure eases where wages slow and housing noise fades. The policy machine sees that mix and leans toward relief. That bias matters because it shapes how every surprise propagates. A soft CPI is oxygen for balance sheets and a repricing of tails. A hot print is just a test of whether the market owns too much duration and too much small cap beta.
What moves me off this view
Three things change my mind fast. One, a core CPI re-acceleration driven by services that are wage sensitive rather than shelter noise. Two, a claims spike that turns the labor loss of momentum into job loss. Three, a policy surprise that withdraws easing odds and lifts real yields. If any of those show up, I cut risk and rebuild with fresh information.
Dates that carry weight
Wednesday 08:30 ET brings PPI. Trade services, transportation and healthcare set the tone for margins. Thursday 08:30 ET brings CPI. I will watch core services ex shelter, OER, medical, used autos, and airfares. The ECB meets Thursday with a hold bias and a soft tone. Sep 16 to 17 the Fed publishes the decision and the dots, which likely drift lower with a clear nod to labor cooling.
Cross‑asset map
Rates first. The 10Y sits near 4.1 with a real chance to test sub 4.0 if CPI is gentle. The clean expression is a bull steepening in 2s10s as cuts come forward. I run call spreads in TY to keep convexity without bleeding out. My fail line is a daily close above 4.2. Breakevens have eased off the highs. A soft CPI compresses them further while real yields do most of the work.
FX next. The dollar feels heavy. Break the summer support on a soft CPI and you unlock another leg lower. A hot print buys time, not a trend change, unless services truly reheat. EUR trades the ECB tone. JPY tracks the long end of Treasuries and wakes up fast if 10Y breaks 4.0.
Commodities. Gold sits in record air and earns the right as real yields sink. I prefer call flies to keep risk bounded while giving room to run. Oil remains a range instrument with supply capping the upside. I fade spikes when inventories and products do not confirm. Copper holds a range as China drags meet supply frictions.
Credit. IG is tight and will print heavy new issue once CPI is out of the way. I take concessions and prefer A over BBB when I want drawdown cushion. HY hangs in but will show beta first if CPI is hot. Energy credits wobble if crude rolls toward the low 60s.
Volatility. Equity vol stays anchored until a data shock shakes the term structure. Rates vol remains the higher gear. My book carries long gamma in rates and time spreads in equities so carry does not eat me alive.
Equities with texture
SPX still
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