Week Ahead: US NFP Report, JPY Intervention & AI Earnings
US NFP could bring some clarity after the FOMC confusion
Last week’s FOMC meeting left the market confused. On the one hand, the 10-3 vote was more hawkish than expected. On the other, Federal Reserve Chair Kevin Warsh failed to provide much detail on how the central bank plans to bring inflation back to the 2% target, despite reiterating its commitment to doing so.
As a result, the market reined in September rate hike expectations to around 65%, compared with a move being almost fully priced in ahead of the meeting. At the same time, the 30-year Treasury yield reached a 19-year high.
Against this backdrop, attention will turn to a busy week on the U.S. economic calendar, with the focus on jobs and culminating in the crucial non-farm payroll report on Friday.
Prior to the NFP, ISM manufacturing and services PMIs will be in focus, particularly the price components, for clues over any resurgence in price pressures after the U.S.-Iran ceasefire collapsed and traffic through the Strait of Hormuz was disrupted again.
Friday’s non-farm payroll report is expected to show 91,000 jobs were created in July, up from 57,000 in June. However, the unemployment rate is expected to rise from 4.2% to 4.3%.
A solid report, with more than 100k jobs created, could support the view that the Fed has room to hike rates in September. However, a second weaker-than-expected NFP report could raise questions over the strength of the labour market and see investors pare back rate hike expectations further. This could pull yields and the USD lower while supporting Gold, which has struggled around $4000.
USD/JPY – Intervention & Volatility Risk Remain
USD/JPY fell sharply after the U.S. and Japan jointly conducted yen intervention on Friday, confirming a rare bilateral action aimed at stopping the yen’s slide to fresh 40-year lows. Another sharp move higher in the yen today is keeping traders on alert for further intervention from authorities.
History suggests that coordinated FX intervention can have a significantly greater impact. Since 1998, all three episodes of coordinated U.S. FX intervention have been successful, with the markets leaning into the move.
The yen has been under pressure, undermined by the Bank of Japan’s gradual approach to monetary policy tightening. However, last week’s meeting did see policymakers adopt a slightly more hawkish stance.
Minutes from the BoJ meeting will be released this week, and further hawkish rhetoric could help lift the yen. Falling oil prices could also offer support after President Trump said he had called off an attack on Iran, with talks between the two sides expected this week.
USD/JPY has fallen below its multi-month falling trendline and 200 SMA, in a bearish picture.
AI Earnings Come After July’s Crash
U.S. AI stocks will remain firmly in focus this week, with earnings from several companies closely linked to the AI trade. Palantir reports on Monday, followed by AMD and SpaceX on Tuesday, with SanDisk and Western Digital reporting on Wednesday.
These earnings come after AI jitters rippled through the Nasdaq in July, leaving the tech-heavy index with its worst July performance in 22 years. Meanwhile, the semiconductor sector, measured by the SOXX Semiconductor ETF, plunged 22.1% in July, its worst monthly performance since December 2002.
These moves highlight the sharp reversal in AI and semiconductor stocks. So far, even strong earnings have been insufficient to lift the sector. Instead, concerns over huge investment in AI infrastructure, how this spending is being financed and stretched valuations have raised fears of a bubble.
The question now is whether the sell-off has gone too far. If it has, encouraging earnings this week could provide the catalyst for a recovery, helping to stage a recovery in the Nasdaq.
