BofA believes that the US non-farm payrolls for July will rise by only 60,000. This shows that job growth is slowing down from previous months. A drop in state and local government jobs is likely contributing to this decrease, especially after the temporary boost seen in June. The unemployment rate is expected to reach 4.2%, suggesting a softening job market. Seasonal factors could also influence the overall numbers, but immediate effects from immigration policy are not expected.

July Report Expectations

The July report may indicate a weakening job market, but it is not likely to lead the Federal Reserve to take action in September. Any Fed decision would probably require softer inflation data as well. We expect the July US jobs report to be much weaker, estimating around +60,000 new jobs. This is a significant decrease from June’s temporary hiring spree, which showed +250,000 jobs added. This slowdown suggests that traders should be cautious about the strength of the US economy. The unemployment rate is projected to rise to 4.2%, a level not seen since late 2023. This further supports the idea that the job market is losing momentum, which could lead to lower US Treasury yields as the markets anticipate a higher chance of future rate cuts. Derivative traders might look at SOFR futures to benefit if the Federal Reserve decides to ease its stance later this year.

Market Implications And Strategies

This expected weakness could create significant market volatility. To prepare for a potential surge in the VIX, traders might consider call options to protect against a steep market decline if job numbers turn out to be weaker than anticipated. Any unexpected data will likely cause a large market movement. For equity markets like the S&P 500, the situation is complicated. While a weak economy can hurt company profits, it may also speed up the timeline for interest rate cuts, which would help stock valuations. Strategies like straddles on the SPY could be useful, enabling traders to profit from large price swings in either direction after the report. A disappointing jobs report usually puts pressure on the US dollar. With the market already expecting a less aggressive Fed, we might see the dollar index (DXY) continue to decline. This could be an ideal time to consider call options on currencies such as the Euro or Japanese Yen against the dollar. However, this jobs report alone isn’t enough to push the Fed to cut rates in September. We are still dealing with the recent core inflation reading from July, which was a stubborn 3.5%, well above the target. The upcoming CPI inflation data will be crucial in shaping the Fed’s next decision. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now