Weekly Plan 6/2
NFP: Job markets summer vacay?
Hello traders,
Hope you had a great weekend.
No time to waste, weekly recap below.
We caught the botton on NQ at 245 on Friday.
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Moving on,
This week we have JOLTS and NFP as major catalyst which can provide direction to this market.
Other than that on Wednesday, all eyes will be on the Bank of Canada as they deliberate on the pivotal decision of whether to reduce interest rates. There is a prevailing expectation leaning towards an announcement of a rate cut. Should the Bank opt to maintain current rates, the likelihood of a reduction in July becomes significantly stronger.
It is important to remember the historical context here. The Bank of Canada was the pioneer among G7 nations in initiating rate hikes, a move that was subsequently mirrored by other central banks, including the Federal Reserve. It stands to reason that the Bank of Canada, having led the charge in tightening monetary policy, will similarly take the lead in easing it. As they blaze this trail, we can anticipate other central banks to follow suit, echoing their adjustments in the global economic landscape.
As far as NFP goes, a deceleration in growth is not inherently negative. In fact, it's precisely what the Federal Reserve aims for as it seeks to cool down an overheated economy. However, there's a fine line between a controlled slowdown and excessive deceleration. If growth softens too much or if economic data significantly underperforms, it could lead to a scenario where bad news is, indeed, just bad news—a phenomenon we got a taste of last Friday.
Looking ahead to the Non-Farm Payroll (NFP) numbers this Friday, there's a reasonable expectation that the report might come in more tepid than anticipated. The critical factor will be the extent of this softness. Should the NFP numbers merely dip below estimates, we might see a favorable market response with bonds bidding and the dollar weakening, reflecting a bullish sentiment as financial conditions ease. Conversely, if the report is excessively weak, it could provoke a less favorable reaction, reinforcing the idea that bad news is, in fact, a cause of worry.
Fed wants to cool the economy a bit and this NFP number could just do the trick for the Fed.
Morever,