The U.S. job market showed strong signs in June, with non-farm payrolls exceeding expectations. This indicates that the economy remains steady, despite recent hints of weakness in leading indicators. Goldman Sachs Asset Management shared in a client update that the labor market is still resilient. This data supports the Federal Reserve’s cautious approach, suggesting that policymakers may keep rates steady until clearer signs of inflation and economic growth emerge. Goldman Sachs also noted that if inflation stays low over the summer, the Federal Reserve might start easing rates in the second half of the year. They are closely monitoring upcoming CPI data and wage statistics for potential rate cuts in 2025. More information and analysis about this stronger-than-expected jobs report are available. This section confirms that June’s employment numbers were better than anticipated, indicating a stable economy. Although some forward-looking indicators, such as weak manufacturing orders and slower retail sales, have raised concerns recently, strong hiring in sectors like services and construction shows that companies are not planning major cutbacks. This strong job creation works against rapid changes in monetary policy. Goldman Sachs, in its private client communication, emphasized the ongoing strength of the job market. They focus on consistent payroll growth and its connection to inflation. They argue that the Federal Reserve is being patient, not because of indecision, but because they want clearer data, especially regarding wage pressures and consumer prices. Without continued easing in these figures, interest rates are likely to remain steady. For those interpreting these indicators through the futures curve, policy direction becomes the key factor. The current jobs data pushes back against aggressive expectations for short-term easing. Even if earlier in Q2 there were signs of weakness, the June rebound reduces the urgency for intervention. Unless price data significantly surprises to the downside, finding reasons for near-term changes in rates is becoming harder. From our perspective, we are now closely monitoring regular releases, particularly core CPI and average hourly earnings. If inflation data comes in lower than expected in July and August, bets on a softer Fed approach may come back. Otherwise, the momentum appears to be moving in the opposite direction. Although not dramatically so, it’s enough that those trading on yields might want to adjust their outlook to a more neutral stance. This shift in macro data increases pressure on those expecting quick interest rate drops. At the same time, it doesn’t suggest a rapid increase either, as private sector wage growth has stabilized. What we’ve observed is more anchoring in pricing models, especially in options markets related to 2-year and 5-year yield targets. These positions will need to adjust based on incoming data, but they indicate that rate volatility could decrease through late July. Looking ahead to next week, it’s important to focus on rate-sensitive developments. The market had positioned itself a bit too early for dovish expectations following the spring data slowdown. This jobs surprise, while unlikely to completely change those sentiments, will lead to a careful revaluation. We have begun to notice a slight increase in implied volatility for short-term rate contracts, but it remains modest. This keeps us alert to the possibility of renewed conviction, though with more cautious exposure until the August inflation reports are released.

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