Insights 
VT 
The US dollar initially strengthened during European trading but later weakened due to a disappointing ADP employment report, which showed a drop of 33,000 jobs against an expected rise of 95,000. This caused concern about the upcoming non-farm payrolls report. Further pressure came from a new US trade deal with Vietnam, which includes a 20% tariff, signalling potential market challenges.
Gold increased by $19, while US 10-year yields rose by 3.6 basis points to 4.28%. WTI crude oil saw a $1.95 increase, closing at $67.40. The S&P 500 index climbed 0.5%, with the Canadian dollar leading and the British pound lagging.
us budget votes delay and market impact
The delay in US budget votes further impacted the market, highlighting fiscal hawks in the House making a stand. Amid these developments, risk trades improved, with equities rising as a Dallas Fed survey indicated a plan to further reduce US rigs.
In the UK gilt market, yields increased after the government reversed plans for austerity measures in the welfare system. This, along with fiscal concerns tied to Exchequer Reeves, caused a 130-pip drop in the pound. Although it recovered partially, this remains an important trend to monitor.
We’re dealing with a situation where economic data surprises are shifting expectations faster than many had anticipated. The disappointing ADP figures sent a clear early signal that the labour market might be softening more quickly than what had been priced in. When we see such a sharp discrepancy – a loss of 33,000 roles against a forecasted gain – it doesn’t just trigger a short-lived reaction, it can unravel confidence in the broader narrative around job growth. That’s precisely what fed into the backward move in the greenback.
With the non-farm payrolls due next, markets tend to position defensively – but this time, the reaction was sharper. It’s not just that one data point disappointed; it hinted at deeper fragilities. Derivatives linked to short-term rates would naturally reprice lower yield assumptions off the back of this, while related equity hedges become more complicated to justify.
trade policy shift with hanoi
There’s also the matter of the trade policy shift with Hanoi. Tariffs rarely operate in isolation. A 20% levy, while specific in scope, introduces uncertainty beyond the goods themselves. It reinjects talk of supply chain restructuring, cost pressures, and squeezes on margin for firms that had only just adjusted after the disruptions of recent years. These are not variables that traders in rates or vol markets can comfortably ignore.
Meanwhile, energy prices made a decisive move. The Dallas Fed survey, layering onto tighter expectations from US rig counts, illustrates the supply squeeze narrative finding new traction again. WTI spiked sharply; if that’s sustained, the inflation pass-through story becomes difficult to dismiss. Treasury yields ticking higher may partly reflect that – not a reappraisal of growth prospects, but more a nod to possible stickiness in inflation coming from input costs.
On index futures, the rally in the S&P was paired with improved sentiment in equity-linked volatility products. However, it’s worth pointing out that this gain came despite the obvious crosscurrents from Washington. The continued budget delays, combined with opposition positioning in the House, keep fiscal uncertainty in motion. Each delay risks further impacting confidence across US assets broadly, but also reduces visibility for how agencies and firms will respond over the next quarter.
Turning to the UK, we noticed marked action in gilts as some policy plans were walked back. Scrap the assumption for austerity, and immediately the bond market questions how spending will be paid for. That fed directly into FX markets, where sterling got dumped in the initial flow. The pound’s partial recovery was mechanical, not a signal of conviction returning. Expect the dynamics around the Exchequer and fiscal credibility to keep reappearing in swap spread pricing and options volatility in the near term.
From where we sit, protective positioning looks more relevant again, especially in areas sensitive to rate shifts and front-end repricing. The conviction behind recent moves in commodities and FX suggests these aren’t just technical reactions; they’re signs that fundamentals have turned messier. The near-term may see outsized responses to moderate surprises – and that’s now built into how we approach exposures.
