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More Signs of Cooling Jobs: Are Rate Cuts Coming?

June 6, 2024
Frank Cabibi

Today's unemployment number came out higher than expected for the second week in a row. Wednesday's ADP NFP was softer as well indicating a slowdown in the private payrolls. Tomorrow is NFP, and analysts expect a higher number than last month. But the signs so far this week are pointing to a cooling jobs market.

EdgeFinder Analysis

Gold is still our best bullish reading on the EdgeFinder at +11. The reason behind the metal's bullishness is coupled with the fact that we're seeing a cooling jobs market. Obviously, NFP could change the narrative on Friday, but for now it looks like the economy is not as healthy as analysts hoped.

Investors want signs of a rate cut which coincides with a softer NFP, but it might not be for bullish reasons in the stock market. If the Fed feels forced to cut because of a worse economy, that is not a healthy reason for stocks. But it is for gold which trades as a hedge against the dollar and yields which continue to fall.

As the market sits at all time highs, investors may start to question whether the rally is sustainable or not. Regardless of jobs numbers this week, it seems that NVDA is a key factor in the S&P's strength which is now a $3 trillion market cap and is the second biggest company in the world.

NVDA's bullish sentiment is revolved around the 10/1 stock split on Friday which could drive even more demand into the company. Although the stock won't become cheaper on a value basis, it will be less expensive for investors to participate in the trade.

The dollar remains weaker against the euro as rates seem capped and a rate cut could be the next move from the Fed. EURUSD is now a +10 which up 2 points from yesterday. Regardless of the reason for the cut, this means dollar weakness.

The Fed would like the luxury of cutting as in the economy shows signs of health. However, the signs of a cooling jobs market is not what the Fed wants. And if NFP comes in lower, it's going to look even more bearish for the dollar. This could cause more demand to the bullish side on EU.

Retail Spotlight

Retail is now 90% long USOil which is due to its heavy drop in price this week. Falling oil prices could be a result of it being an election year, so I would not bank on oil seeing heavy upside this year. The indices are majority shorted by retail which is another sign for bullishness in stocks for now.

Smart Money Spotlight

Retail is now short gold while COT remains the most bullish it's been this year. The idea around gold being a healthy option during this time is that in either scenario, the dollar will likely weaken from here. Stocks may be negatively affected by the worse economic figures. And if they continue to roll in lower, gold might be the only bullish option left.

Fundamental Spotlight

Unemployment claims are higher than expected this morning. This is the second most number of jobless claims we've seen in the past 13 weeks. It does all come down to tomorrow's jobs number, but metrics are already pointing to a lower NFP. It's not a guarantee, but the likelihood of a cooling jobs market is showing right now.

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