Insights 
VT 
The USD is experiencing mixed activity as the US trading session begins. The US jobs report, out at 8:30 AM ET, is anticipated to show a rise in non-farm payrolls by 110,000, with unemployment expected at 4.2%.
Last month’s nonfarm payroll increased by 147,000, but nearly half were state and local government positions, which are not expected to recur. In July, key sector changes included private-sector payrolls adding 104,000 jobs and Challenger job cuts reaching 62,075, the second-highest for July. Initial jobless claims were observed at a four-week average of approximately 220,000.
Current Economic Projections
Projections for the current month include a manufacturing employment decline of 3,000 and an anticipated increase in average earnings to 3.8% year-on-year. No estimates are available for the labour force participation rate and U6 underemployment, which were previously 62.3% and 7.7%.
Fed Governors Bowman and Waller dissented during the recent FOMC meeting for different reasons. Both emphasised potential risks to the labour market and inflation expectations, advocating for a rate cut to counteract these issues.
New tariffs take effect today, with adjustments based on trade relationships. The Dow, S&P, and NASDAQ indices are down sharply, impacting the broader market outlook. US debt market yields have shown an increase, resulting in a steeper yield curve.
The US jobs report, due shortly, is creating significant uncertainty, especially with estimates at a low 110,000. Last month’s figure was misleadingly propped up by government hiring, a source we do not expect to repeat. A number below this weak estimate would likely accelerate fears of a sharp economic slowdown.
Impact Of New Tariffs
This uncertainty is causing market volatility to spike, with the VIX index jumping above 25 for the first time since the banking turmoil in the spring of 2024. Traders should consider buying protection against further equity market declines. Buying put options on the S&P 500 or Nasdaq 100 provides a direct way to position for downside risk from both the new tariffs and a potentially weak jobs report.
The dissent from Fed Governors Bowman and Waller, who both favored a rate cut, signals that the central bank may be behind the curve. The market is reacting swiftly, with Fed funds futures now pricing in an over 80% chance of a 25 basis point cut at the September FOMC meeting. This makes trades betting on lower short-term rates, such as call options on 2-year Treasury note futures, increasingly compelling.
At the same time, the bond market is sending a conflicting signal as longer-term yields are rising. This suggests the new tariffs, effective today, are stoking long-term inflation fears even as the economy slows. A yield curve steepener trade, going long short-term debt futures while shorting long-term debt futures, could profit from this widening gap.
These new tariffs on major trading partners like Canada and Switzerland are the main driver of this new economic anxiety. The combination of slowing growth and rising cost pressures is drawing comparisons to the stagflationary period of the late 1970s. This is a far cry from the consistent job gains and stable inflation we were seeing just two years ago in 2023.
Given this backdrop of inflation risk and geopolitical tension, gold may act as a key safe-haven asset. It historically performs well during periods of stagflation and central bank easing. Traders could look at buying call options on gold ETFs to gain exposure to potential upside as market uncertainty persists in the coming weeks.
