US average hourly earnings rose 3.5% year on year in March. This was below the 3.7% forecast.<\/p>\n
The data point shows pay growth came in under expectations. It adds to the March set of US labour market readings.<\/p>\n
This 3.5% wage growth number, falling below the 3.7% forecast, solidifies our view that inflationary pressures are finally easing in a meaningful way. This gives the Federal Reserve the justification it needs to consider a more dovish stance in the coming months. We are already seeing the derivatives market react, with the odds of a July rate cut priced into SOFR futures jumping from 45% to nearly 70% this morning.<\/p>\n
For equity traders, this data strengthens the “soft landing” narrative that has been building since the start of the year. We should consider adding to long positions in S&P 500 (ES) and Nasdaq-100 (NQ) futures, as the prospect of lower rates provides a tailwind for corporate earnings. The CBOE Volatility Index (VIX) has already dropped below 14 on this news, and selling VIX calls or call spreads could be an effective strategy to capitalize on an expected period of lower market turbulence.<\/p>\n
This shift in interest rate expectations will likely put downward pressure on the U.S. dollar. A weaker dollar is generally supportive of commodities, making call options on gold and silver particularly interesting right now. We anticipate the Dollar Index (DXY) will break below the 103 support level it has held for the last few weeks, a move that could provide further momentum for precious metals.<\/p>\n
However, we must remember the market\u2019s over-enthusiasm during parts of 2025, when rate cut expectations got far ahead of the Fed’s actual policy decisions. Back then, sticky services inflation, which was running near 4%, repeatedly forced the market to readjust its timeline for easing. While today\u2019s wage number is a significant piece of the puzzle, we should remain hedged for any surprisingly strong inflation data in the next report.<\/p>\n
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