Investor conviction around an imminent Federal Reserve rate cut deepened on Monday, following a sharply disappointing US labor market report that rattled risk assets and pushed Treasury yields lower. Equities have since staged a recovery, led by US tech, as traders weigh the balance between recession risk and resilient corporate performance.
Interest rate futures now imply a near 95% probability of a cut at the Fed’s next meeting, up from 80% following Friday’s data, which showed significant labor market softening. That repricing has injected new momentum into equity markets even as broader macro concerns linger.
Key Takeaway for Traders: Market momentum is now firmly tied to Fed policy direction. Any shift in data surprises or Fed commentary will dictate the next leg for both equities and the dollar.
Daly Signals Readiness to Ease as Labor Market Cools
Speaking Monday, San Francisco Fed President Mary Daly acknowledged the growing case for easing, citing “mounting evidence” of labor market deceleration and the absence of inflationary spillover from recent tariffs. Her comments reinforced investor sentiment that the Fed is approaching a policy pivot, especially as political pressure continues to intensify.
President Donald Trump quickly seized on the market rebound, declaring it a “Good day in the Stock Market” on Truth Social, and promising “many more days like this” as proof of his administration’s economic strategy. His remarks come amid heightened scrutiny over trade tactics and their downstream impact on US businesses and consumers.
Trade Front Remains Fluid: EU, Japan, and Switzerland Respond
On trade, geopolitical maneuvering remains a critical input for traders. The European Union is preparing for potential executive actions from the White House this week, which may include tariff exemptions for selected industrial goods and a formal reduction in levies on EU made cars, according to sources familiar with the discussions.
Elsewhere:
- Switzerland is pushing for renewed negotiations with the US after Washington stunned Bern last week with a 39% tariff announcement on key exports.
- Japan’s top trade envoy is en route to Washington today to press for implementation of last month’s agreement, which included a proposed reduction in US automotive tariffs.
Implication for Markets: As trade partners scramble for exemptions and clarity, global supply chains and equity sectors exposed to autos, aviation, and manufacturing remain vulnerable to sudden shifts in White House trade policy.
Positioning Outlook: Volatility and Policy Risk in Focus
While equity indices rebound off April lows, macro volatility is far from abating. Traders face a complex backdrop of dovish Fed signals, fragile global growth.
- Risk-on sentiment in tech may prove transitory if labor and wage data continue to weaken.
- US dollar path will hinge on the Fed’s signal in coming days, with downward pressure mounting.
- Global equities face asymmetric risks from White House trade decisions especially as allies and adversaries alike adjust to a more unilateral US stance.
Bottom Line: Data-Driven Decisions, Policy-Led Markets
The Fed’s next move is no longer just a monetary decision it’s a market defining event. With expectations for easing now heavily priced in, traders must assess whether the data will justify the dovish turn or if volatility will surge again on any sign of hesitation.
Stay alert. Stay adaptive. Position accordingly.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.