The USD is seeing mixed activity as the US trading session starts. The US jobs report, released at 8:30 AM ET, is expected to show an increase of 110,000 non-farm jobs, with unemployment projected at 4.2%. Last month, non-farm payrolls grew by 147,000, but nearly half of those jobs were in state and local government, which is unlikely to happen again. In July, private-sector payrolls added 104,000 jobs, while job cuts from Challenger reached 62,075, the second-highest for July. Initial jobless claims are averaging around 220,000 over the past four weeks.

Current Economic Projections

This month, projections indicate a decline of 3,000 jobs in the manufacturing sector and an expected rise in average earnings to 3.8% year-over-year. No estimates are available for the labor force participation rate or U6 underemployment, which were previously 62.3% and 7.7%. Fed Governors Bowman and Waller disagreed during the recent FOMC meeting for different reasons. Both highlighted potential risks to the labor market and inflation expectations, pushing for a rate cut to address these concerns. New tariffs begin today, based on trade relationships. The Dow, S&P, and NASDAQ indices are sharply down, affecting the overall market outlook. Yields in the US debt market have risen, resulting in a steeper yield curve. The upcoming US jobs report is causing significant uncertainty, especially with low estimates at 110,000. Last month’s numbers were misleading due to government hiring, which is not expected to repeat. A number below this weak estimate could raise fears of a severe economic slowdown.

Impact Of New Tariffs

This uncertainty is causing market volatility to surge, with the VIX index climbing above 25 for the first time since the banking issues in spring 2024. Traders may want to consider buying protection against possible declines in the equity market. Purchasing put options on the S&P 500 or Nasdaq 100 offers a direct way to hedge against the risks from new tariffs and a weak jobs report. The disagreement from Fed Governors Bowman and Waller, both in favor of a rate cut, suggests that the central bank may be falling behind. The market is reacting quickly, with Fed funds futures showing an over 80% likelihood of a 25 basis point cut at the September FOMC meeting. This makes trades betting on lower short-term rates, like call options on 2-year Treasury note futures, more attractive. At the same time, the bond market shows a different signal, as longer-term yields are rising. This suggests that the new tariffs, which take effect today, are raising long-term inflation fears even as the economy cools. A yield curve steepener trade, where you go long on short-term debt futures while shorting long-term debt futures, could take advantage of this widening gap. These tariffs on major trading partners like Canada and Switzerland are driving new economic concerns. The mix of slowing growth and rising costs draws parallels to the stagflation period of the late 1970s. This stands in stark contrast to the consistent job gains and stable inflation seen just two years ago in 2023. With inflation risks and geopolitical tensions in play, gold may serve as a crucial safe-haven asset. It typically performs well during times of stagflation and when central banks ease. Traders might consider buying call options on gold ETFs to tap into potential gains amid ongoing market uncertainty in the coming weeks. Create your live VT Markets account and start trading now.

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