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Only in the rare event that the RBA really wanted to inject great uncertainty as to its future policy path would they go down the route of shocking the market – but, as history has shown when the markets implied pricing of an outcome is above 90%, and the bank haven’t guided expectations away from such highly convicted levels, then they always meet the market. <h2>Could the RBA cut by 50bp? </h2>There is a loose debate that the RBA could cut by 50bp on Tuesday – in fact, for a short period of time today, the Aussie swaps market had priced a 12% chance of a 50bp cut. However, the strong May household spending data (+0.9% m/m / 4.2% y/y) has subsequently seen that small premium for an outsized cut being removed. In essence, the RBA could feasibly choose to pull out the big guns and cut by 50bp, but that would need to be carefully explained to the markets as to why the urgency to front-load the cuts, when a 50bp cut has traditionally only been pulled in times of panicked markets. <h4>The move in the AUD to be driven by the tone of the RBA’s statement</h4>

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Given the current rates pricing, a 25bp cut in isolation – if realised - shouldn’t move the AUD or the AUS200 to any great extent, and so layering into AUD shorts in anticipation of a rate cut seems a low-impact tactical trade. The movement in the AUD will therefore likely come in response to the tone of the RBA’s statement and shortly after from Gov Bullock’s press conference. It’s here where we assess the urgency expressed to take the cash rate to a ‘neutral’ policy setting – neutral being the equilibrium policy setting, which is neither stimulatory nor restrictive for the unfolding economics. <h4>How quickly will the RBA cut to a neutral setting? </h4>In February, the RBA made it known that they saw the neutral rate at 2.90%, although in the May Statement on Monetary policy, its projections for the trough cash rate were slightly higher at 3.2%. Having already cut the cash rate from 4.35% to 3.85%, to get to 2.90% would imply the RBA have another 3 to 4 rate cuts to get take policy to a neutral setting – how quickly they go about lowering the cash rate and how efficiently they articulate this to the market is what the AUD and AUS200 will feed off. Looking further out along the Aussie swaps curve and the central expectations for each respective meeting out till March 2026, we see a further 50bp of cuts implied by December, with the cash rate expected to trough at around 3% going into 2026. As the RBA await the all-important Q2 CPI print (due 30 July), it’s hard to see the RBA offering strong implicit forward guidance on how quickly they want to get to neutral – they remain somewhat data dependent and reactive - and while growth in the private sector remains anemic, yet wages remain elevated at 3.4% y/y and the labour market is still tight, its seems unlikely that traders get the hard definition they want. <h4>AUD positioning under review </h4>Positioning is also a key factor when considering the extent of any move in the AUD in response to a major announcement. As it stands, both leveraged and retail accounts hold a small net long position in the AUD, while real money accounts are small short. Not a huge amount to get excited about, or that offers a clear skew for a directional move in response to the news.

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So, in essence, given the current market pricing in the rates market, and while all roads lead to a 25bp cut, the question for those looking for a tactical trade or even managing the risk of holding AUD exposures over the RBA meeting, we consider whether the statement and Gov Bullock’s presser offers the degree of urgency to get to 3% more quickly than what is priced…..if we don’t get it perhaps we could see a short bout of AUD upside. We also consider that once the dust settles on the RBA meeting, AUDUSD will then soon revert to taking its direction and steer from the S&amp;P500, HK50, copper and/or the CNH (Chinese yuan). When trading a view on RBA policy, doing so against the cross rates and removing the USD exposure is often the cleaner play. Good luck to all.

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RBA July Meeting Preview: Will the Cash Rate Cut to 3.6% Signal a Fast Track to Neutral?

WHERE WE STAND – Another month, another goldilocks US jobs report.Headline nonfarm payrolls rose +147k in June, well above expectations, and towards the top of the forecast range, while average hourly earnings grew just 0.2% MoM, and unemployment unexpectedly dipped to 4.1%. Not too hot, and not too cold. In fact, pretty much a perfect jobs report, which speaks to continued underlying resilience within the US economy.The only blot on an otherwise perfect copybook was a decline in labour force participation, to 62.3%, a cycle low. This, though, was likely driven by immigration, and is a volatile series anyway, so doesn’t provide especially much cause for concern.Naturally, we can lay to rest the idea of a July Fed cut on the back of these figures, though frankly it was always a very long shot indeed. Nevertheless, it’ll be interesting to see whether Governors Bowman and Waller still favour a cut at the end of the month, with such a view now being even more blatantly politically-motivated than it was a week or so ago. My base case remains just one 25bp cut this year, most likely in December.As for markets more broadly, Thursday proved a very solid day indeed for risk appetite, with the bull case on Wall Street having been further strengthened by the aforementioned jobs data. When this strong underlying momentum is coupled with solid earnings growth, and continued progress towards trade deals being made, it creates a potent mix to fuel further gains, exactly as we are now seeing, with spoos taking out 6,300 yesterday. The path of least resistance continues to lead higher.Elsewhere, Treasuries sold-off across a flatter curve, amid a hawkish repricing of Fed expectations post-NFP. Still, that move simply took us back towards the middle of the recent trading ranges, in which I expect us to remain – 4.25% to 4.50% in the 10-year, and 4.75% to 5.00% in the 30-year. Fiscal jitters should continue to constrain gains, especially with the ‘one big beautiful bill’ soon to be signed by President Trump.Probably the most interesting action, yesterday, came in the FX complex. While the dollar jolted higher on the back of the jobs report, these gains had almost entirely fizzled out within an hour or so. If the buck can’t catch a sustained bid on the back of that print, and a noteworthy beat on the ISM services figure, then one begins to question if it can catch a bid on anything at all. My base case remains for a slow and steady USD decline in the months ahead, with 1.20 in the EUR and 1.40 in cable the most obvious targets on this front.Speaking of cable, I suppose I should probably mention that Chancellor Rachel Reeves was smiling, not crying, yesterday, and that long-end Gilts have retraced about half of Wednesday’s sell-off as well. All well and good, but the fiscal backdrop remains fragile, while the Chancellor is effectively there ‘in name only’ – lacking credibility, and lacking the power to do anything lest backbench MPs rebel.Reeves remains on borrowed time, and so does that Gilt rally.LOOK AHEAD – There’s nothing of any interest whatsoever on the data docket today, and with the US out for Independence Day, there’s not likely to be much of interest taking place in markets either.The perfect day, then, to spend some time off the desk, given that being on the desk will probably be akin to watching paint dry. A long lunch, perhaps, or some cold ones in the sun, maybe, or possibly even both. Whatever, for once, following the US’s lead seems sensible!

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Goldilocks Jobs Report Sees Sentiment Firm Into Long Weekend

Headline nonfarm payrolls rose by +147k last month, above expectations for a +105k increase, and towards the top of the unusually tight forecast range of +70k to +160k. Concurrently, the prior two payrolls prints were revised by a net +16k, in turn seeing the 3-month moving average of job gains rise to +150k, comfortably above the breakeven rate.

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Taking a look under the surface of the payrolls print, job gains were relatively broad-based, though led by Government employment, primarily driven by hiring at the State and Local levels. On the flip side, net job losses were seen in Manufacturing for the second month running, and in Professional &amp; Business Services for the first time since March.

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Staying with the establishment survey, the report pointed to earnings pressures remaining contained. Average hourly earnings rose 0.2% MoM, a touch softer than consensus, which in turn took the annual rate to 3.7% YoY, also a touch cooler than expected.This data serves to reinforce the FOMC’s longstanding view that, at present, the labour market is not a source of significant upside inflation risk, though those risks are of course still present, primarily stemming from the Trump Admin’s trade policies, even if the full pass-through of tariffs has yet to be seen.

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Turning to the household survey, unemployment unexpectedly fell to 4.1% last month, though this came as labour force participation declined to a cycle low 62.3%, presumably a result of increased immigration enforcement during the month.This data, though, must continue to be interpreted with a degree of caution, given the unusually volatile nature of the labour force this cycle, and as the BLS continue to grapple with declining survey response rates.

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In reaction to the jobs report, money markets ditched their bets on a July Fed cut, which had been seen as a one-in-four chance pre-release, pushing back the timing of the next 25bp cut to October, and now discounting just 50bp of easing this year (vs. 66bp pre-release).

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Taking a step back, the June employment report shouldn’t materially alter the Fed’s thinking on the near-term policy trajectory, with the FOMC set to stand pat at the end of this month, as the labour market remains resilient.There remain, in my mind, two potential scenarios for the FOMC in the second half of the year. If inflation remains contained, Chair Powell will likely use the late-August Jackson Hole Symposium to pivot in a more dovish direction, before delivering cuts in September and December; on the other hand, if tariff-induced inflation emerges, the present ‘wait and see’ approach will persist, probably resulting in just one cut this year, in December. For the time being, my base case remains the latter.

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June 2025 US Employment Report

WHERE WE STAND – Yesterday wasn’t exactly the most thrilling day for financial markets, though at least the cricket was on to provide something of a distraction.It wasn’t just the cricket that provided a distraction, though, with another episode of the long-running UK political soap opera to keep us entertained as well.In short – the Government’s attempt to pass welfare reforms on Tuesday failed, actually resulting in increased spending, as opposed to the cuts supposed to be delivered; then, at PMQs yesterday, PM Starmer refused to repeat his pledge that Rachel Reeves would still be Chancellor at the next election, with Reeves appearing in tears on the front bench behind the PM; later, in a damage control exercise, Number 10 and HMT spokespersons stressed Starmer’s ‘full support’ in his Chancellor.If all that sounds rather shambolic, it’s because it is! Unsurprisingly, the market took a rather dim view of all this, with the calculus being that Reeves’s days in office are numbered, no matter what denials may be issued. Frankly, it seems difficult to conclude anything else.The problem here, though, is who, and indeed what, comes next. I reckon this is a case of ‘better the devil you know’ and that, while I’m not exactly Reeves’s biggest fan, she’s probably the best of a bad bunch of candidates for the job. The big issue is that there are four ways to resolve the issue of constantly breaching the fiscal rules – spending cuts, tax hikes, greater borrowing, or changing the rules. The first and second have been tried, and failed, while the third would go down like a lead balloon with financial markets.That leaves the fourth as the most likely option for a new Chancellor, which also makes higher borrowing a much greater probability, again exerting significant pressure on Gilts across the curve, and also on the GBP, which slumped well over 1% against most G10 peers. This dynamic, of the currency and Govvies selling-off together, is a classic sign of a market increasingly jittery over the fiscal backdrop, with these jitters unlikely to dissipate any time soon. It’s also an EM-ish dynamic, as much as it pains me to say that.In a counter-intuitive way, this could be Reeves’s best argument to keep her job, in that markets would experience such a significant adverse reaction if she were replaced. Still, it probably won’t be enough, with it being increasingly politically expedient for Starmer to shuffle her out of the Treasury.Elsewhere, yesterday, the data docket was relatively barren, though the ADP employment report did point to a surprise -33k fall in employment last month. Still, it’s ADP, so take it with a huge pinch of salt, as the link between that figure, and the NFP print due later today, is at best ropey.Of much more importance than that, was news that the US and Vietnam had struck a trade deal, announced in true Trumpian fashion via a Truth Social post. Imports into the US from Vietnam will now be subject to a 20% tariff, though this doubles in the case of “transshipments”. Relatively punchy levels, but at least this serves to confirm my longstanding view that the direction of travel on trade remains towards deals being done, and much calmer rhetoric prevailing.This, of course, continues to support the bull case for equities, along with solid economic growth, and strong earnings growth, though the latter will soon be tested with Q2 earnings season less than a fortnight away. Anyway, equities gained ground on Wall Street yesterday, with the path of least resistance continuing to lead to the upside, given the aforementioned rationale.Meanwhile, in the Treasury complex, some selling pressure emerged across the curve, with the long-end underperforming, presumably a spill-over impact from the sell-off seen in Gilts. See, we may not be the world power we once were, but us Brits can still move global markets sometimes! In any case, we remain within well-defined ranges, the benchmark 10-year between 4.25% and 4.50%, as participants wait and see whether today’s jobs report can result in a more decisive breakout.Similar can be said of the FX complex, where the pressure seen in the GBP made waves elsewhere, as the greenback advanced against most G10 peers. I view this move as more of a short-term bounce, than a more durable rebound, however, with the balance of risks continuing to point to further USD downside, particularly as the erosion of monetary policy independence continues, and reserve asset allocators increasingly look elsewhere.LOOK AHEAD – Not only is today a ‘synthetic Friday’, with the US out for Independence Day tomorrow, it’s also ‘Jobs Day’!The June US labour market report drops this lunchtime, with headline nonfarm payrolls seen rising +110k, a modest slowing from the +139k seen in May, but still just about above the breakeven rate. Earnings, meanwhile, are seen rising 0.3% MoM and 3.9% YoY, neither of which should give the FOMC too much concern on the inflation front, with unemployment set to rise 0.1pp to 4.3%, though with the unrounded May figure having been 4.2443% this isn’t the biggest jump in reality.On the whole, it’s difficult to imagine the jobs report being a game-changer for the FOMC, given Chair Powell’s resolute ‘wait and see’ approach to policy, amid a plethora of upside inflation risks. From a market perspective, the initial reaction, particularly in the equity space, is likely to see focus fall on the macroeconomic story painted by the report, as opposed to any potential dovish policy implications, especially in the event of a soft report. Good news is good news, and bad news is bad news.Away from the jobs report, a plethora of services PMI prints are due, though only the US ISM survey is likely to be market-moving, with the remainder simply ‘final’ prints that are unlikely to be revised from the respective ‘flash’ estimates. On the policy front, we see minutes from the June ECB meeting, as well as remarks from the Fed’s Bostic.Lastly, as noted, with tomorrow being Independence Day, we not only have US market closures on Friday to contend with, but also early market closures this evening. Setting that aside, with a long holiday weekend looming, participants will probably look to head for the exits as early as possible, probably seeing both volumes and liquidity thin out relatively soon after the jobs data has been digested.

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Reeves On Borrowed Time As NFP Looms

According to estimates compiled by FactSet, aggregate earnings growth for the S&amp;P 500 is expected at 5.0% YoY in the second quarter which, if realised, would mark the 8th consecutive quarter of growth, albeit also the slowest such pace since the final quarter of 2023. In terms of revenue, growth is seen at 4.2% YoY, if realised marking the 19th straight consecutive quarter of growth.Coming into earnings season, though, at least per traditional valuation metrics, the benchmark S&amp;P 500 remains ‘overvalued’, with the forward 12-month P/E ratio sitting at 21.9, above both its 5- and 10-year averages.

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Drilling down to a sectoral level, expectations are a touch more mixed.Six of the index’s eleven sectors are set to report annual earnings growth, with Communication Services and Information Technology leading the way. On the other hand, Energy is set to lead YoY earnings declines. Revenue growth expectations are considerably more positive across the board, however Energy is again seen lagging here.Heading into reporting season, though, guidance has, as usual, trended in a negative direction, with earnings estimates having fallen around 4.1% through the second quarter, considerably above the 10-year average. This, though, shouldn’t be especially concerning, given the long-standing tendency of firms to ‘massage and beat’ those depressed expectations.Consequently, along with the figures themselves, market participants will also pay close attention to guidance that firms issue along with their reports, particularly considering the still-uncertain macroeconomic environment, and ever-changing tariff landscape. As has been the case for some time now, the bar for stocks to unlock post-earnings upside is a relatively high one, requiring both beats vs. consensus, and guidance upgrades, for durable rallies to take place.As usual, earnings season will get underway with the major Wall St banks kicking things off, acting as a bellwether for the remainder of the season. The outlook here remains somewhat mixed, with M&amp;A volumes still relatively subdued given the uncertain environment, despite having picked-up from the slump in Q1. At the same time, the Fed’s ‘wait and see’ approach on rates should see NIMs remain solid, though the degree of provisions made will be worth watching closely, given increasing jitters over the potentially fragile state of the labour market.

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Besides the banks, earnings from the tech megacaps will also be closely watched, even if the ‘magnificent seven’ term is being thrown around a lot less this year, than in 2023 and 2024.The group’s performance has been incredibly mixed this year, nothing like the market dominance seen in recent times, with stock-specific factors playing a much more significant role – Tesla driven lower by the ongoing ‘Trump vs. Musk’ feud; Apple facing headwinds amid incredibly sluggish progress on the AI front; while, in contrast, Meta, Microsoft and Nvidia have all performed well, as they continue to make the most of momentum behind the AI theme, and in the latter case, an apparent never-ending amount of increasing CapEx.

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Taking a step back, earnings season will be a pivotal test for the market, with both the S&amp;P 500 and Nasdaq 100 entering reporting season at, or very close to, record highs. The bull case to date has been built on cooler trade rhetoric, strong underlying economic growth, and a solid pace of earnings growth. Were this latter pillar to be threatened, some near-term headwinds to risk could emerge, though any weakness is likely to be seen as a buying opportunity.

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A Look Ahead To Q2 25 US Earnings Season

WHERE WE STAND – Focus fell on the ECB’s annual policy forum in Sintra yesterday which, for those unaware, is a bit like the Fed’s annual Jackson Hole Symposium, only if it were instead organised by Ryanair.The ‘big beasts’ of the central banking world were in attendance – Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey &amp; BoJ Governor Ueda – all appearing on a panel discussion together where, we got absolutely nothing by way of fresh information. All four spent the panel trying to say as little as physically possible, while also sticking resolutely to their familiar scripts.As such, Lagarde reiterated the ECB’s ‘data-dependent and meeting-by-meeting’ approach to policy decisions; Ueda noted that inflation remains below the BoJ’s price target; Bailey flagged that the direction of trave for rates remains lower; and, last but not least, Powell repeated that the “prudent” thing to do on policy is to remain in ‘wait and see’ mode. Powell also refused to be drawn on whether he would remain as a Governor once his term expires next May – it’s highly unlikely, but I’d love if J-Pow stayed on the Board purely to wind up President Trump, who continued his attacks on the Fed yesterday.Suffice to say, markets weren’t especially bothered by what happened in Sintra, with participants also relatively easily shrugging off inline eurozone CPI, as well as better than expected US ISM manufacturing and JOLTS job openings data.Despite that, it proved to be a relatively soft start to the second half of the year in the equity complex, with the tech sector leading downside on Wall Street, as Trump and Elon Musk reignited their long-running feud. While the S&amp;P closed just marginally in the red, this is quite clearly – in my mind – an opportunity to buy the dip, with the bull case of strong earnings growth, a solid underlying economy (as exemplified by yesterday’s data), and calmer rhetoric on trade, remaining firmly intact.Sticking with equities, we had worrying news from the UK yesterday, that AstraZeneca (AZN LN) may be seeking to move their listing to the US.Astra, the largest stock in the FTSE as of yesterday’s close, leaving the London market would be nothing short of a disaster, particularly with their potential departure stemming not from valuation worries, but as a result of the firm having become fed up with the UK’s operating environment – and, who can blame them! I would hope that Chancellor Reeves jumped straight on the phone to CEO Pascal Soriot in order to resolve his concerns, and provide re-assurance in rapid fashion. Then again, I won’t hold my breath on that one, given recent form, and just hope that whoever is the last to leave the London market remembers to turn off the lights on their way out.Elsewhere, Treasuries traded softer across the curve, as the ‘one big beautiful bill’ continued to progress through Congress, remaining on track to reach Trump’s desk by Friday. The sell-off, though, which saw the front-end notably underperform, isn’t much to be excited about, as it really just puts benchmark yields back within the ranges that we’ve seen for the last few weeks, e.g. 10s between 4.25% and 4.50%. Again, it’s tough to see these bands breaking down soon.Despite all the excitement elsewhere, things were somewhat more dull in the G10 FX space, where the dollar pared initial weakness as the day went on. My base case remains for the greenback to slowly but steadily grind lower over time, as confidence in the idea of monetary policy independence continues to be eroded.Interestingly, ECB Vice President de Guindos gave&nbsp; a green light to further EUR appreciation in remarks yesterday, but did add that a move above $1.20 would be “complicated”. I guess, then, that’s where this move will stop – or at least, pause – next!LOOK AHEAD – A pretty barren docket ahead today, though it’s very much a case of ‘calm before the storm’ given how packed tomorrow’s calendar is.Only two releases of note are on today’s slate, namely the latest eurozone unemployment figures, and last month’s US ADP employment report. Neither, frankly, are likely to be especially market-moving, especially with the ADP print really only being useful for telling us what the nonfarm payrolls print won’t be.Besides that, trade headlines will remain in focus, with the market starting to pay increased attention to the issue, especially with just a week now until the pause on ‘Liberation Day’ tariffs is due to expire – even if the can is likely to be kicked down the road on that front. TACO!

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July Starts With A Damp Squib In Sintra