The US ADP employment change four-week average fell to 35.75K as of 2 May, down from a prior reading of 42.25K. The move points to a softer pace of private payroll growth over the latest four-week window.<\/p>\n
In absolute terms, the decline amounts to 6.50K. Even so, the average remains positive, indicating continued expansion in employment by ADP\u2019s measure.<\/p>\n
We are viewing the decline in the ADP employment average as a significant early warning of a cooling labor market. The drop from 42.25K to 35.75K in the four-week average is not just a blip, but a trend suggesting that hiring momentum is fading. This points toward weaker economic activity as we head into the summer months.<\/p>\n
This perspective is reinforced by the most recent official jobs report, where April’s Non-Farm Payrolls came in at a disappointing 85,000, well below the consensus forecast of 150,000. Additionally, the latest CPI data released in mid-May showed core inflation moderating to 3.1%, its slowest pace in over a year. This combination of a soft labor market and easing inflation strengthens the case for a more cautious Federal Reserve.<\/p>\n
Given this data, we believe the market is underpricing the probability of a Federal Reserve rate cut later this year. The CME FedWatch tool now shows a 65% probability of a rate cut by the September meeting, up from just 30% a month ago. We are therefore positioning for a downward shift in short-term interest rates by looking at SOFR and Fed Funds futures.<\/p>\n
For equity index derivatives, the outlook suggests a period of heightened volatility. The tension between a slowing economy (bearish) and the potential for easier monetary policy (bullish) will likely lead to choppy markets. We are therefore looking to buy protection via put options on the S&P 500 or purchasing VIX call options to capitalize on expected price swings.<\/p>\n
We also anticipate the U.S. dollar will weaken as interest rate cut expectations become more entrenched. Historically, the dollar index has fallen an average of 2-3% in the three months leading up to the first rate cut of a new easing cycle. This makes options on currency futures, particularly those for the Euro and Japanese Yen, an attractive way to position for this shift.<\/p>\n","protected":false},"excerpt":{"rendered":"
ADP four-week job growth slipped to 35.75K, signaling cooling labor momentum and boosting rate-cut expectations.<\/p>\n","protected":false},"author":103,"featured_media":16971,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[99,9,105,100,97],"class_list":["post-54092","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-central-bank","tag-dollar","tag-economy","tag-inflation","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/54092","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=54092"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/54092\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16971"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=54092"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=54092"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=54092"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}