By Jules Rimmer
Friday’s release of non-farm payrolls data is of critical importance.
Investors are trying to assess the impact of the U.S. administration’s trade policies to determine whether they are causing any weakness in the labor market.
If the data suggests they are, then markets will begin to discount a cut in interest rates from the Federal Reserve in September. Further evidence, however, that the economy is chugging along relatively unimpeded by tariff wars could see easing hopes dented and traders disappointed.
Read: Here comes the July jobs report. The unemployment rate is the ‘main number you have to look at now,’ Fed’s Powell says.
Citi’s global quantitative macro-strategy team of Alex Saunders and Nathaniel Rupert has studied historical trading patterns on the days when non-farm payrolls (NFP) data have been announced. Their research finds that “equities tend to rally on payrolls days; even negative surprises tend to see partial reversals”.
Citi established the median return of the E-mini S&P 500 (ES00) futures contract on NFP days is 16 basis points. Interestingly, they also discovered that irrespective of the initial reaction, there is generally a small upward drift later in the trading day.
For U.S. Treasury futures (TY00) , though, the same analysis reveals a small negative return with a drift downward later in the trading session on negative surprises. ” In terms of multiday follow through, there does not appear to be much differentiation between bullish and bearish surprises with some short-term mean reversion over the next 8-10 trading days if we do get a bullish surprise,” the Citi team wrote.
In terms of a trading recommendation for Friday’s data, however, Citi recommends a long EURUSD (EURUSD) call (wagering the euro will strengthen versus the dollar) based on the downside risks to the jobless number (a low number may encourage the Fed to cut and reduce the interest rate differential against the euro). Citi also notes the dollar’s rebound in the last few trading sessions.
Having broken upward through the 50-day moving average earlier this week, the dollar DXY has squeezed higher in advance of the unemployment report and so some traders may jump at the chance to bank some gains.
-Jules Rimmer
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08-01-25 0507ET
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