Ahmad Assiri
Markets spent little time absorbing last Friday’s payroll shock. After the headline jobs miss nudged investors toward trimming size positioning, the play has shifted into a more defensive gear across assets yet with a growing conviction that the Fed will soon extend a policy safety net with two or three rate cuts by year end.
Volatility over the coming sessions will revolve around three intertwined factors, oil dynamics after OPEC+ unwind voluntary restraint, just as Washington escalates pressure on buyers of discounted Russian crude such as India. Second, the next US employment report which could confirm whether labour market strength is fading faster than the Fed’s own forecasts as well as next week’s CPI. Third, the trajectory of Treasury yields and the dollar.
In energy market, OPEC+ may have floated higher quotas, but the alliance is still effectively withholding barrels and the Brent curve reacted in kind by slipping below USD 70b/d. Technically, the it has probed its 50-day moving average several times without sustaining a breakout, carving a solid USD 68 – 72 range. The latest retreat from USD 74 pushed prices back toward the USD 68 floor where dip buyers have emerged. Markets are now running a simple calculus, if imminent US sanctions or secondary tariffs force India to trim its roughly 1.5 mb/d intake of Russian crude, a sizeable chunk of the forecast surplus could evaporate, making USD 68 more a strategic line of defence than an entry to fresh downside.
On Wall Street, the S&P 500 has already clawed back about half of last week’s 3.5% drop, regaining 1.5 % in early-week trade and closing north of 6,300 after Friday’s low at 6,230. Crucially, the bounce was broad based with more than 85% of constituents finishing in the green. Technology led, but communications services, utilities, and other defensives contributed, signalling that short sellers who chased weakness were forced into covering as sector concentration eased. Technicians will watch last week’s intraday peak for confirmation that the uptrend is back on track, even if buyers hesitate, holding the 6,230 pivot keeps the broader structure constructive.
The unseen prop for equities is the now-entrenched belief that the Fed will deliver a 25 bp cut in September and a 50 bp cut on the table should August payrolls slump below 75k while unemployment ticks higher. Swaps imply roughly a 90% probability of the first cut effectively baking it into the price.
That conviction is visible on the Treasury curve 10y yields have slipped from 4.35% to around 4.20% since mid-last week, a textbook defensive pivot. Lower real rates flatter equity valuations by compressing the discount rate on future cash flows yet they also telegraph latent concern that earnings could soften if growth downshifts too abruptly.
In FX space, the dollar index remains range-bound but biased lower, EURUSD hovers near 1.16 without staging a decisive breakout. For now, traders do not perceive a further policy divergence risk between the ECB and the Fed. A negative payroll this month, however, would resurrect a weaker dollar narrative, giving immediate lift to dollar priced commodities, gold first.
Gold itself has rebuilt a firm base near USD 3,300 per ounce and vaulted back above $3,380, reclaiming its 50-day average after two consecutive closes below it for the first time since 6 January. The rebound blends falling real yields, speculative short-covering, and a steady bid from emerging market central banks seeking reserve diversification ahead of possible Fed easing. Sustaining that momentum hinges on a contained dollar and Treasury backdrop and benign inflation prints, the near-term sweet spot would be a sideways dollar and a retest of 3,300 support into next week’s CPI release.
In short, markets are treating the current stretch as an intermission, part sentiment check, part macro litmus test. Wall Street’s relief rally feels anchored by policy cut expectations reminiscent of last year’s fourth-quarter playbook, yet growth anxiety lurks beneath the surface.
Assiri is Research Strategist at Pepperstone
