Trump says Iran war "close to over" amid hopes for more negotiations
Good morning
Friday is the final trading day of the week and it could be quite volatile. Geopolitical tensions remain elevated after the US and Israel strikes on Iran, but markets are currently moving sideways as attention shifts to the US jobs data.
The logic is quite simple. Lower job growth and higher unemployment would point to weakening economic activity, which normally supports the idea of rate cuts. On the other hand, a strong labor market would suggest the Fed could remain on hold, or even consider another hike if inflation picks up again due to rising energy prices after the Middle East tensions.
Even if the labor market data comes in weak today, it does not necessarily mean the Fed will cut rates soon. The Middle East situation could keep inflation pressures elevated, which may become the bigger issue for central banks. In that case the Fed could find itself trapped between slowing growth and rising inflation risks, so weaker data could easily turn into a trap if markets initially push risk assets higher.
My view is that stocks may remain sideways regardless of the data. It is hard for me to see them turning strongly bullish here, although charts can always tell a different story.
Looking at US yields, they are still on the rise. The 2-year yield shows a clear five-wave advance, and we may now see some slower price action or even a short-term pullback toward 3.5 percent. However, this could still be only a-b-c correction before the uptrend resumes. In that case, the dollar, which is strongly correlated, as you can see with the blue line on the chart, would likely resume higher as well. I would be even more confident about a dollar recovery if the data comes in stronger than expected.
NFP expectations: 58K, previous: 30K.