We expect nonfarm payroll growth rebounded to 65k in August. Some of the July weakness appearS temporary – especially the decline in public-sector employment. We expect the unemployment rate continued to decline in August, dropping to 4.0%. Fundamentals for unemployment improved through the month, with layoff measures remaining near historic lows and signs of stabilization in labor demand. Wage growth likely rebounded after surprising weakness in July. We expect monthly average hourly earnings (AHE) growth to round up to 0.4%. Underlying wage growth appears to be cooling gradually, but a technical rebound in AHE is likely in August. Policy implication is that a healthy labor market should keep Fed officials focused on inflation risks. But the labor market does not appear to be a source of inflationary pressure. NFP growth remains uncomfortably low, with additional near-term headwinds for labor supply. And despite a technical rebound in August, we expect gradual wage disinflation to continue. Hence, we believe Fed is likely on hold as inflation momentum is waning & Fed typically does not do a hawkish pivot in an election year since 1990. From trading perspective, we are currently received in 1yr-1yr SOFR half risk at 4.15 and half risk at 4.25. Friday’s close was 4.27. Our stop loss is at 4.40 and profit target is 3.90. We like to receive 2 yr US SOFR around 4.32 levels (CMP 4.21) and 2yr UST around 4.45 levels (CMP 4.34), preferably after Aug NFP. Stop to both trades is 10 bps higher from entry and take profit is 20 bps lower from entry. We also like to put steepeners in 2*10 US SOFR around .05-.07 levels (CMP .13) for an eventual profit target of 0.20 with SL at -0.02. DXY is likely to see an upswing to around 100.40 levels from CMP of 99.70 which is also the 50 DMA. But 100.40-100.50 is a tough resistance beyond which we do not see DXY sustaining.
