In the European session, only a few minor data releases are expected, such as industrial production figures from Germany and France, along with Eurozone retail sales. These numbers are not likely to impact market pricing significantly. Moving to the American session, important labor market reports will be released. Canada is predicted to report a decline of -12.5K jobs, a shift from the previous gain of 7.4K, with the unemployment rate increasing to 7.0% from 6.9%. The Bank of Canada recently kept interest rates the same, opting to wait for more information regarding trade and inflation. Currently, a reduction of 31 basis points is forecasted by the end of the year, with potential cuts expected to start in the last quarter of 2025. For the US, the non-farm payroll report is expected to show an addition of 130K jobs in May, down from 177K in April, while the unemployment rate is expected to remain stable at 4.2%. Average Hourly Earnings Year-over-Year is forecasted at 3.7%, a slight drop from 3.8%, but the Month-over-Month figure is expected to rise to 0.3% from 0.2%. Data from the labor market indicates a slowdown in hiring attributed to tariff issues, but this is not severe enough to motivate rate cuts by the Federal Reserve. The market currently anticipates a reduction of 54 basis points by the end of the year, with the first cut likely in September. If upcoming data is positive, the Fed may have fewer reasons to cut rates, which would change market expectations. The figures from Germany, France, and the Eurozone can help gauge trends in consumption and manufacturing activity, yet they are unlikely to cause significant shifts in market positions in the short term. These are lagging indicators. While they help economists build a clearer picture, traders often receive them too late to react effectively. Most of the market’s moves have already happened by the time these reports arrive. Today’s main focus is on the North American data releases, particularly the Canadian jobs report and the US non-farm payrolls, which could lead to notable market movements. The Canadian employment report anticipates a negative headline, indicating a cooling job market. A contraction of 12.5K jobs compared to last month’s minor gain would emphasize slower hiring. The unemployment rate’s rise from 6.9% to 7.0% supports this view and explains why the Bank of Canada is keeping rates stable. Policymakers are seeking more clarity from employment, trade, and pricing data before making changes. Market indications suggest one rate cut is likely by December, with more adjustments not expected until next year. In the US, the labor market is more significant for market volatility. Job gains are expected to slow from 177K to 130K, while annual wage growth is forecasted at a solid 3.7%, despite a small drop. Monthly wages are expected to increase, presenting a mixed signal about inflation: easing year-on-year but firmer month-on-month. This could reduce premature calls for rate cuts from the Federal Reserve. Now, let’s discuss market positioning. The 54 basis points projected for this year—beginning with a potential cut in September—could be overly optimistic if the job numbers are steady or improve. Stronger employment or wage data would likely mean the Fed delays action. Should there be any surprises, traders involved in rates or credit spreads must adjust their expectations quickly, as interest rate futures will shift. Fed Chair Powell and his colleagues are not under immediate pressure. The hiring slowdown has been gradual, and despite challenges from tariffs, it hasn’t collapsed. Employment continues to grow, just at a slower pace. Until the economic situation becomes more concerning, the Fed can afford to watch without intervening. Traders in interest rate derivatives, especially STIRs and swaps, need to be mindful of the risks linked to forward guidance. Sensitivity in the front end will stay high during the next few employment cycles, particularly if upcoming data contradicts the market’s softer outlook. The immediate bias seems to favor steady yields, but aggressive easing curves may put pressure on longer-dated bets. While volatility in rates may not surge today if non-farm payrolls align with expectations, any unexpected changes in hiring or wage inflation could send clear signals, especially for curve steepeners and short-dated rate products. Traders must keep their positions flexible enough to adapt while remaining substantial enough to capture repricing if the Fed shifts its current stance.

here to set up a live account on VT Markets now