US jobs report the main event before the long weekend ...Middle East

The drama continues in the US House but market players mostly have their eyes fixated on one thing today. And that is the US jobs report. It's a rare occasion for it to fall on a Thursday but this comes amid a US holiday tomorrow in lieu of Independence Day. With the dollar keeping in a vulnerable spot, this is going to be a key report in setting the tone in the coming weeks.

As Trump continues to pressure Powell into cutting rates, a poor report here will just add fuel to the fire. But how are markets positioned going into things?

Fed funds futures show just ~27% odds priced in for a rate cut at the end of this month and it is unlikely that the Fed will suddenly budge from their position. That especially as trade and tariffs uncertainty continue to permeate across broader markets.

A 25 bps rate cut for September is fully priced in and another in October is almost there as well. By year-end, there's ~67 bps of rate cuts priced in i.e. at least two 25 bps rate cuts and closer to three. So, bad data today should keep the pressure on the Fed to cut consecutively starting from September at least.

The dollar is down in the dumps and could continue to get picked on if the numbers today don't provide much help.

While the data here relates mostly to the Fed and economic outlook, there are still other major considerations for the central bank. The first as mentioned, is how things are going to play out on the trade front. Then back home, policymakers will have to see what lawmakers make do of Trump's "big, beautiful bill".

At the same time, the Fed has to manage all of that in the context of existing inflation developments. So, a stronger set of data today will complicate things a little but I would argue that it won't change the Fed outlook all too much.

Markets are looking to September next for the first move and unless the Fed communicates otherwise, that will still be the base case outlook no matter what the US jobs report says today. Keep that in mind in case we get a kneejerk reaction to better numbers in the immediate aftermath.

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