October depends on the core rate.
Wednesday’s September CPI is expected at 3.6% y/y, pushed up by energy. Core should slow to +0.2% m/m. Markets give an Oct. 28 hike about a 20% chance, and only a clear core surprise changes that. Retail sales follow on Thursday. Overall skew: the Dollar draws more support from Europe’s problems than from the Fed. A soft core print caps it but does not reverse it.

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A weak jobs report and a stronger Dollar.
September payrolls added only 29k jobs against 84k expected, and unemployment rose to 4.2%. Money markets cut the odds of an Oct. 28 hike from about 70% to 18% within a few days. They still price at least three hikes over the next twelve months, which looks too aggressive, and December is the more likely date for the next move. The Dollar’s strength is mostly a euro story: against the yen and the franc it barely moved. Long-end Treasury yields still rose to multi-year highs. Wednesday’s FOMC minutes cover a meeting held before the payroll miss, so hawkish wording has a short shelf life. ISM services came in today at 54.9 versus 55.4 prior, trade data tomorrow and preliminary UMich Friday (48.0 consensus). Overall skew: firm against the euro, limited upside against JPY and CHF. Front-end pricing has more room to fall than to rise.

EUR

France prices like the periphery.
Paris sets the direction for the euro. French 10Y yields have climbed to their highest since 2002 while Bunds rallied, and the OAT-Bund spread is now wider than Italy’s. The budget should pass if Le Pen backs it to avoid a bond crisis, but until then the spread stays the main driver. Inflation alone would support hikes: the flash HICP rose to 3.8% against 3.6% expected, core edged up to 2.5% and services to 3.2%. Even so, markets give an Oct. 29 hike only a 26% chance. Lagarde said higher long-term yields “will slow growth and reduce pass-through by more than projected”, and the market took that as a reason for the ECB to hold back. Data: final services PMI today at 53.0, German factory orders and euro-area retail sales tomorrow, German industrial production Wednesday. Overall skew: soft. Short EUR/JPY around 177.70 is the cleaner trade, and EUR/CHF at 0.9328 is the best gauge of fragmentation stress.

GBP

Gilts held, and sterling gained in Europe.
Gilts barely moved, and next to France that is enough for sterling to work as the more stable option in Europe. The calendar is thin: final services PMI today at 52.1 versus 51.7 prior, BoE credit conditions survey and Bailey on Thursday. Supply is heavy, with index-linked 2035s tomorrow and 2031s and 2028s Wednesday. The Oct. 28 budget remains the bigger risk for gilts. Overall skew: neutral vs USD, constructive vs EUR as long as the OAT spread stays wide.

JPY

The yen gains on the crosses, not against the Dollar.
MoF weekly flow data show foreign investors were heavy sellers of Japanese equities, though the Nikkei still gained 2.9% to 68,309. Ueda speaks tomorrow, the BoJ’s branch managers meet Thursday with the regional economic report, and the timing of the next hike is the open question. Labour cash earnings come Tuesday night (3.7% consensus after 4.3%), the current account Thursday, household spending Friday. The MoF auctions roughly 2.6tn Yen of 10Y paper Tuesday and 600bn Yen of 30Y Thursday. Overall skew: express yen strength through EUR/JPY rather than short USD/JPY while US long-end yields keep rising.

CHF

The franc is back as a safe haven.
After four months of weakness, the franc is in demand again, driven by fragmentation fears around France. Swiss yields fell alongside Bunds. September CPI matched expectations at 1.0% y/y, a two-year high, with prices flat on the month. That does not change the SNB’s 0% stance, but it makes clear that a weaker franc would be welcome. No major Swiss data this week. Overall skew: franc strength vs EUR as long as the OAT spread does not narrow. Below 0.93, intervention talk becomes more likely (as seen today).

AUD

The RBA delivered, and AUD fell anyway.
The RBA raised the cash rate 25bp to 4.60% in a unanimous vote and left the door open to further hikes “if needed”. August CPI rose to 4.0%. None of it helped the currency. Rising global yields and weaker risk appetite matter more than the domestic rate story. Australian 10Y yields are just below a 15-year high, and the third US carrier group heading to the Middle East keeps upward pressure on them. The domestic calendar is quiet, with PMIs Wednesday and inflation expectations Thursday. Overall skew: soft vs USD in the near term, with the June low near 0.690 as the next level. AUD/NZD at 1.2392 remains the better expression of the RBA’s hawkishness.

NZD

Nothing to lean on.
With no domestic catalysts, NZD trades off global yields and equities. Overall skew: soft.

CAD

A low rate gives the BoC room to move.
September jobs on Friday are expected at +5.0k after −41.7k. A partial rebound would keep a December hike in view. With the policy rate at 2.25% and Canadian yields rising less than elsewhere, the BoC has room for modest tightening. Politics adds a domestic risk: Quebec votes on Oct. 5, where the separatist Parti Québécois could take power, and Alberta holds a non-binding referendum on Oct. 19. August trade data come Tuesday. Overall skew: soft near term. A PQ win puts a separatism premium on CAD before the jobs data matter.

Cross-Asset Notes

Europe takes the hit, Japan holds up.
With US long yields rising, gold is not acting as a hedge right now. The deployment of a third US carrier group and 10,000 Marines keeps the risk premium in oil.

The FOMC minutes on Wednesday set the tone for US rates. In Europe, the OAT spread matters more this week than any data release.

EUR/USD Fair Value

Institutional Positioning

Wishing you a successful week ahead,

David Gauch — Founder, Gauch Research

The Fed’s favourite gauge is about to be rewritten.
DXY closed the week 0.75% higher at 100.97, even after Friday’s pullback on Hormuz headlines. The front end did the lifting: the 2Y has added 72bp since Jackson Hole through Thursday, the largest 21-day jump since March 2023, and the 10Y closed at 5.17%. Money markets put the odds of a second straight hike on Oct. 28 at around 64%, and futures carry roughly three more over the next twelve months. The Fed’s own dots show one. Wednesday’s August PCE comes first. Core PCE runs near 3.2% against 2.4% for core CPI, the widest positive gap in over four decades. The BEA’s annual revision introduces a new method for financial-services fees, a category that on its own added more than 0.4pp to core PCE in July. A lower revised profile weakens the case for October. Payrolls on Friday: Analysts expect around 100k with a downward revision to August’s 162k, since the low-hire, low-fire pattern has not changed. Unemployment is seen at 4.1%, wages at 3.2% y/y. A print like that keeps October live without settling it. September CPI on Oct. 14 is the second deciding report. JOLTS comes Tuesday (7.27m prior), ADP Wednesday, ISM manufacturing Thursday (54.6 prior). Overall skew: supported while yields hold. A downward PCE revision is the release this week that can take October off the table.

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The Fed hiked, and this time the Dollar listened.
Wednesday’s 25bp to 3.75–4.00% was unanimous. It was the first hike since July 2023, and the committee signaled at least one more before year-end. The market took Warsh at his word: DXY gained 1.1% on the week to 100.22, the best level in about six weeks, and the 10Y is parked right at 5.00%. Kashkari added fuel on Sunday, saying price pressure has spread beyond the oil shock. That’s the real shift, because this is no longer an “oil in, oil out” story. Brent is already easing (around $102 today, with Saudi flows coming back), and the Dollar gave nothing back. This week is light on data and heavy on Fed talk. Flash PMIs come Wednesday, claims Thursday, and durables and final UoM Friday (1Y inflation expectations seen at 4.6%). Trump–Xi on Thursday is the wildcard. The real test is PCE next Wednesday. Overall skew: Dollar supported on dips, but holding above 100 needs PCE to confirm.

EUR

Priced for hikes, trading like it doesn’t believe them.
EUR/USD lost 1% to 1.1485, back at the late-July lows. Markets still carry roughly 50/50 odds of another ECB hike this year, with the deposit rate priced just under 2.9% by December. But once the Fed moved, the rate spread turned against the euro. Some are already arguing ECB pricing is too high: energy at these levels kills growth before it kills inflation. That argument gets tested Wednesday with flash PMIs (composite 52.0 prior) and Thursday with the Ifo (89.2 expected). Consumer confidence is out Tuesday, Lane speaks twice and Schnabel on Thursday. Overall skew: soft. A PMI miss pulls ECB pricing lower and brings 1.14 into view. Upside needs lower oil and softer US data at the same time.

GBP

BoE on hold, pound on the back foot.
Cable fell 1% to 1.3395, near its weakest since late July. The BoE held at 3.75% on a 6–3 vote and warned that a prolonged Middle East conflict could force a hike. It also slowed QT to £46bn a year, below the £50bn the market expected. August CPI at 3.1% (core stuck at 2.6% for a fourth month) and a surprise +0.5% in retail sales keep November live, but with less conviction as oil retreats. This week brings public finances Tuesday, flash PMIs Wednesday, and Bean, Dhingra and Breeden on Thursday. Overall skew: neutral to soft vs USD. If you want sterling, EUR/GBP at 0.858 is the cleaner expression, since relative rates still favor the pound.

JPY

A hike with two dissents reads as a dovish hike.
The BoJ lifted its rate to 1.25%, the highest since 1995. But Asada and Sato voted against, and Ueda kept stressing that conditions stay accommodative. The market heard “slower than the Fed,” and USD/JPY ran 2.1% on the week to 156.87. Core CPI slipped to 1.7% in August, which doesn’t help the hawks. Now the risk flips. There are reports of a BoJ rate check late Friday, and Tokyo is on holiday Monday to Wednesday. Thin markets are exactly where Japanese authorities have stepped in before. Flash PMI is out Thursday. Overall skew: no chase above 157. Carry says higher, but intervention risk means the path there will be violent. Selling rallies into 158–160 beats buying breakouts.

CHF

The new funding currency.
USD/CHF hit 0.822, the weakest franc since May 2025, and EUR/CHF sits at 0.944. The story isn’t Swiss. The yen has lost its appeal as a funding currency after BoJ tightening and the joint US–Japan intervention. Carry has rotated into the franc instead, because it is cheap to borrow and stable. The SNB decides Thursday, and 0% is fully expected. August CPI at 0.8% (a two-year high) and the strongest GDP growth in nearly five years leave no case for easing and no urgency to hike. Watch the language on FX: a weaker franc is exactly what the SNB wanted. Current account comes Tuesday. Overall skew: franc weakness has room while volatility stays low. The Middle East is the one thing that could flip it back to haven mode fast.

AUD

Best of the rest.
AUD lost only 0.6% against a rampant Dollar to close at 0.7121. AUD/NZD is at 1.2445, up almost 11% on the year, and Aussie is still up 6.7% YTD, among the strongest in G10. This week has substance: Flash PMIs come Tuesday night (composite 52.7 prior), and August jobs land Thursday. The consensus is +20k after July’s -15.8k, with unemployment at 4.5%. Trump–Xi on the same day is a bigger swing factor for AUD than anything domestic. Overall skew: constructive on crosses, neutral vs USD. Long AUD/NZD remains the cleanest divergence trade.

NZD

Fourth weekly loss in a row.
Kiwi fell 1.6% to 0.5721, near a ten-week low. Q2 GDP beat (+0.2% q/q vs +0.1% expected, where the RBNZ had penciled in zero), and the August trade gap came in smaller. It didn’t matter. The market still prices about 60% for an October hike to 3.0%, so the good news is largely in the price. The domestic calendar is quiet, so the kiwi trades off the Dollar and risk sentiment. Overall skew: soft. There’s no reason to catch this before the RBNZ gives one.

CAD

Oil is leaving, and the Loonie is going with it.
USD/CAD rose 0.8% to 1.3986 and opened the week above 1.40. Brent is back toward $100 and WTI is under $100 as Saudi flows through the East-West pipeline recover. That removes Canada’s oil cushion just as the Fed widened the rate gap. Retail sales are out Thursday: July is seen at -0.8% after +0.6%, with a flash read for August. Overall skew: higher bias in USD/CAD while oil drifts lower, and a weak retail print adds to it.

Cross-Asset Notes

Rates hit FX, not stocks. Oil is giving back its premium, copper won’t stop.
The S&P closed the Fed week flat at 7,650, but the tape underneath moved: Nasdaq 100 +0.9%, Dow -1.7%. Tech absorbed the hike and cyclicals paid for it, and that comes only days after semis dropped almost 6%. Earnings still carry this market (Q3 seen around +29%, forward P/E down to about 19x). But with the 10Y at 5% there’s no room for the multiple to expand, so this is compression, not a scare. Europe had the worse week: Euro Stoxx 50 -1.4% on the month.
Brent closed Friday at 103.87 and sits around 100 today as Saudi flows through the East-West pipeline come back. Call it relief, not a fix: crack spreads widened almost 10% last week, and products are what hit CPI. Gold was up 1.1% on the week to about $4,345 and still flat YTD. A 5% 10Y and a firm Dollar keep a lid on it, and as before, a lower price isn’t the signal; the front end has to crack first. Copper is the tell: +5.5% on the week, five straight up sessions, while the Dollar ripped. That’s physical demand, not macro beta.
Flash PMIs on Wednesday decide Europe, Trump–Xi on Thursday decides copper and China, and PCE next Wednesday decides whether stocks can keep shrugging off rates.

Macro Dashboard

Institutional Positioning

Wishing you a successful week ahead,

David Gauch — Founder, Gauch Research

Warsh just brought rates back into the driver’s seat.
Friday flipped the script we’d gotten used to all summer. Yields went up and so did the Dollar, 2Y jumped to 4.36%, 10Y to 4.73%, 30Y barely moved to 5.21%. That’s the front end doing the work, a Fed repricing, not a fiscal panic at the long end. DXY closed at 99.71 and September hike odds jumped to about 56%. Warsh leaned on the numbers: 3.7% PCE over 12 months, 4.1% over 6, unemployment at 4.1%, and the market took it as hawkish. For now, “rates up, Dollar down” is dead. Whether it stays dead is another question. ISM and JOLTS Tuesday, ISM Services Thursday, payrolls Friday (+45k expected) will tell us if Friday holds. Overall skew: no chase here. Dollar’s firm short-term, still messy underneath.

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Structurally fragile; Jackson Hole is the week’s binary.
The defining feature of this market is a non-reaction: 2Y at 4.24%, 10Y at 4.74%, 30Y at 5.27% and a 10Y real yield of 2.40%, with services PMI at 56.8 and composite at 56.0, and the Dollar still fell, DXY closing near 98.8 and down roughly 0.9% on the week. High rates no longer buy Dollar strength. Over four weeks the USD is down close to 3%, the worst run since the Liberation Day fallout, and the common thread in both episodes is that the move was triggered by policy out of Washington rather than by the data. Warsh’s Jackson Hole appearance on Thursday is the centrepiece. He has to avoid a post-speech Treasury sell-off without pivoting so far toward guidance that he looks beholden to a Treasury trying to cap long-end yields, a narrow path, we expect no change in his no-guidance approach. Markets want a reaction function and a reaffirmation of the Fed’s inflation-fighting credentials. Wednesday’s July PCE (core 0.2% MoM, 3.3% YoY expected) alongside the Q2 GDP second estimate is the data anchor; Friday brings the preliminary benchmark payrolls revision, where consensus expects another negative print after last year’s record -911k. December is now almost fully priced for a 25bp hike. Overall skew: selectively bearish USD, but the risk of a hawkish Warsh reasserting rates dominance is real.

EUR

Model leader and the cleanest expression of the Dollar view.
Eurozone activity is holding up better than the energy backdrop implies, composite PMI at 52.1, manufacturing 52.8, services 51.7, with new orders strong and export orders positive for the first time since 2022. EUR/USD trades around 1.1682 after a Friday high of 1.1711. Friday’s flash French and Spanish August CPI prints are the week’s key releases ahead of the ECB on 10 September, with markets pricing a 95% probability of a 25bp hike to a 2.50% deposit rate. Models see headline inflation pushing above 3.5% later this year if current energy prices persist, which if anything hardens the hawkish case. German Q2 GDP detail and ifo Tuesday, GfK Thursday alongside the ECB July accounts, German labour data and EC surveys Friday. The counterweight is Brent near $94, a terms-of-trade drag that prevents this from being a clean long-Europe trade rather than a selective short-USD one. Overall skew: constructive, though we would wait for the pullback to hold and for cross-breadth to confirm rather than chase.

GBP

Constructive but derivative; reserve rather than lead.
Activity is resilient with services PMI at 52.8, composite 52.5 and manufacturing 51.5, and cable has posted a fourth consecutive positive week around 1.365. Carry remains supportive with the BoE at 3.75% and services inflation still at 3.4% against headline 2.9% and core 2.6%. The problem is not the idea but the overlap: Sterling is currently trading the same short-USD beta as the Euro, and July retail sales at -0.5% MoM plus persistent UK fiscal risk make it the weaker leg. The domestic calendar is almost empty. We want to see GBP confirm against EUR or JPY before treating it as anything other than a substitute. Overall skew: mildly positive, but we would not run it in parallel with EUR/USD.

JPY

Macro case improving; price and carry still refuse to pay for it.
July core CPI at 1.8% and core-core at 1.9%, with manufacturing PMI 55.1 and services 52.3, leave a September hike to 1.25% broadly expected, market pricing sits around 82%. Two events matter: Deputy Governor Himino speaks Thursday, where the question is less whether the BoJ hikes than whether it accelerates, and Tokyo August CPI lands Friday with headline expected to ease to 1.9% and ex-fresh food to 1.7%. Joint intervention has driven a further liquidation of yen shorts, but USD/JPY is still near 159.0 and the carry remains heavily negative. Intervention can turn a price abruptly; it does not manufacture a trend, and the US front-end advantage remains large. Oil import costs are an additional drag. Overall skew: watch, not long, we want broad JPY strength across several crosses and a failed USD/JPY rebound before engaging.

AUD

Wednesday’s CPI is the only thing that matters.
The RBA holds at 4.35% and continues to warn that inflation is too high and further hikes cannot be ruled out, so an upside surprise in July inflation would quickly rebuild pricing for a move before year-end. Tuesday’s minutes should be a non-event given both the Governor and Deputy have already spoken since the decision. The counterweight is the labour market, which is now clearly cooling: July employment -15.8k, unemployment at 4.5% and hours worked -0.6%. AUD/USD around 0.7168 has been better in price than the fundamentals justify, and China beta remains unhelpful. Overall skew: price positive, position neutral, better expressed against the JPY than the USD.

CAD

Flat. The trade story has replaced the macro story.
On paper the CAD case is intact: the BoC at 2.25%, retail sales +0.6% MoM, CPI at 3.0%, Brent at $94.39, and Friday’s Q2 GDP expected to rebound to around 3.3-3.4% annualised after three negative quarters out of four, with ING looking for better net trade, stronger consumer spending and a large investment rebound. But Canada has confirmed retaliatory tariffs effective 8 September across several sectors, which overwrites the earlier relief on the avoided 50% US tariff threat and introduces a standalone political risk premium. Oil and rate differentials are not sufficient against a domestic trade shock with no new talks scheduled. Overall skew: no view. We are flat CAD until new negotiations or exemptions emerge alongside price confirmation.

NZD

Record shorts against a thin domestic case.
Data shows NZD shorts at a new record going back to 2006, reflecting scepticism that the RBNZ delivers the nearly 100bp of tightening currently implied. With the OCR at 2.50%, Q2 unemployment at 5.6%, wage growth at 2.0% and inflation at 4.1%, that scepticism is not unreasonable, labour slack caps the quality of any structural long. Monday’s Q2 retail sales will indicate how consumers are absorbing higher fuel prices; business surveys and card transactions point to reasonable nominal growth, with volumes likely flat given price effects. Positioning that stretched cuts both ways. Overall skew: tactically positive on price, no structural conviction.

CHF

A clean conflict between model and market.
On fundamentals the Franc should not be bid, the SNB at 0% with a low inflation forecast argues against any durable long, and the SNB’s willingness to intervene caps rapid appreciation. Yet the Franc has been among the strongest currencies on price this week, which tells us haven flows are doing the work and that the rate disadvantage becomes irrelevant under confidence stress. We take that as information rather than noise: it is a reason to stand aside, not to fade. Overall skew: neutral.

Cross-Asset Notes

Gold has paid the confidence trade most cleanly; oil keeps duration risk alive.
Gold closed for a weekly gain of over 5%, well above its 200-day at roughly $4,513, with silver confirming the breadth, but with the long end this elevated, chasing after a move of that size is poor asymmetry. WTI at $87 keep energy inflation active; individual Iraqi tankers are passing through Hormuz but traffic remains heavily reduced, so this is marginal relief rather than normalisation. The key cross-asset channel is simple: high oil plus a high long end is a negative duration factor. That is already visible in equities, with the S&P down 1.4% on the week, the Nasdaq down 2%, and the VIX closed at 15. This is a fragile fiscal and duration regime, not a systemic one. NVIDIA reports Wednesday alongside PCE, a double test we would not want to carry an elevated bias into.

Macro Dashboard

Institutional Positioning

Wishing you a successful week ahead,

David Gauch — Founder, Gauch Research

Dovish skew now dominant; July CPI is the swing factor.
The July payrolls report at -23K against a +83K consensus was the first outright contraction of the cycle, with private employment adding only 30K for a second consecutive weak month. September hike pricing has collapsed from fully priced ahead of the July FOMC to around 50%. Wednesday’s CPI is the week’s centre piece: consensus is 3.5% YoY, unchanged from a June print that surprised sharply lower, and HSBC expects broad-based core softness with both headline and core undershooting. The complication is Warsh. The FT reports he would be prepared to hike in September if inflation readings are strong and markets ratchet up rate expectations, with people close to him conceding missteps in his first ten weeks, including a failure to reinforce his commitment to price stability. Q2 unit labour costs at +1.4% annualised argue against genuine second-round effects from the energy shock.

EUR

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Looking back at the past week, the FOMC delivered exactly the decision markets expected and almost none of the clarity they wanted. Rates were left unchanged, three regional presidents voted to hike, and Chairman Warsh spent the press conference actively refusing to steer. The result was a Dollar that gave back ground, a long end that sold off hard, and a September meeting that is now genuinely live in both directions.

With the Fed offering no guidance, the data has to do the work.

A Hawkish Hold Without a Compass

The FOMC held the target range at 3.50–3.75% for the second meeting under Chairman Warsh, a level unchanged since December 2025. There were effectively no changes to the policy language or the macro outlook. Set the July 29th statement next to the June 17th version and the documents are near-identical apart from a single verb and the paragraph at the bottom naming the dissenters.

Those dissenters are the story. Hammack, Kashkari and Logan all voted to raise rates by 25bps, producing a 9–3 split. Markets went into the meeting unusually nervous about a surprise hike, but Fed Funds probabilities were only in the low 30% range, well short of the ~60%+ threshold that has historically preceded an actual move. The initial reaction was therefore a bull steepening, with the hike priced out and the front end rallying.

What began as a hawkish hold quickly turned into something more ambiguous. Warsh kept inflation front and centre as the Committee’s primary concern, but most answers were deliberately opaque. Asked whether this was a pause, he responded:

“So, I wouldn’t characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big, hard questions, and I’d characterize it as a view of what our own homework is, to try to resolve those questions and the period ahead.”

On the 2% target and the decision not to act now:

“I would again reiterate. What we do isn’t just about what we say. It’s not just about what we do. We’re in the performance business and so if I look at the Treasury curve, if I look at the dollar, if I look at a lot of things that are internals inside of financial markets, I think what they’re broadly saying is, that this committee does own it.”

And on the three-way split:

“So, could people come to different conclusions? Absolutely, but my own judgment is this is a period of watchful thinking, not watchful waiting and I think the score on that vote was unanimous.”

The most useful line of the whole session was arguably his framing of how markets should approach the Fed: “Market participants are learning to play the ball, not the referee.” Read literally, that is an invitation to trade the data rather than the dot plot, which is convenient, because there is no dot plot to trade.

If Greenspan is the template here, we should expect more of the same. Our working assumption is that Warsh will continue to buy time and avoid committing, using the vote tally rather than the statement as his de facto forward guidance.

The Long End Did the Talking

The more instructive reaction came after the press conference. Without a clear read on Warsh’s reaction function, and with no hike delivered, markets began challenging the Fed’s inflation credibility directly. There is also a growing concern that the Committee may choose to tighten via the balance sheet rather than the policy rate.

The curve bear steepened, with 30-year yields posting one of the largest selloffs at an FOMC meeting in over a decade. The back end got no help from asset allocation flows either, with equities closing on the lows. Long-dated rates now sit at multi-decade highs, a point that matters directly for Monday’s and Wednesday’s refunding announcements, where policymakers will be reluctant to do anything that pushes term premium higher still.

Current Fed Pricing

Prior to the meeting, money markets had almost fully priced a September hike. That has now been scaled back to roughly 67%, and the repricing has been the primary driver of the Dollar’s softness. The DXY fell 1.31% on the week to just above the 100 handle, with EUR/USD holding near 1.1530, GBP/USD near 1.3480 and USD/JPY around 159.10 after suspected intervention. WTI dropped 5.93% to $84.01, which took some of the near-term inflation pressure out of the picture and reinforced the dovish repricing.

Payrolls Take Over the Steering Wheel

The September meeting is eight weeks away, the longest inter-meeting gap of the year. Between now and then the Committee gets two employment reports, two inflation reports and Jackson Hole. September is not a done deal in either direction, and this week is the first meaningful input.

Friday’s July payrolls report is the main event. Consensus sits around 88K after June’s 57K miss, with the unemployment rate expected to hold at 4.2%. A print in that range would be the Goldilocks outcome, soft enough to keep the Fed on hold in September, firm enough to avoid recession pricing.

The risk, in my view, is asymmetric to the downside. Recent labour data has been consistently weak, and with markets already questioning whether the Fed is willing to translate its price-stability rhetoric into actual tightening, a disappointment would trigger a larger dovish repricing than a comparable miss would have done a month ago, particularly if oil stays under pressure.

On the inflation side, core PCE eased to 3.3% YoY from 3.4%, which combined with the cooler June CPI gave the Committee just enough cover to sit still. That is the balance the labour data now has to either confirm or break.

Europe: Energy Is Still the Only Variable That Matters

The Eurozone story remains the energy shock. The ongoing conflict in the Middle East and the associated supply disruptions continue to drag on the region, and the duration of that conflict is ultimately the determining factor. Recent developments have increased, not reduced inflation risks.

Sticky inflation paired with resilient activity keeps the Euro supported, but stronger US data caps the upside. EUR/USD has been more resilient than the relative surprise indices would imply, which continues to tell us that FX is trading rate expectations and capital flows rather than short-term macro beats and misses.

Upside Risk for the Yen Remains

The development that changes the Yen calculus did not come from the Bank of Japan. The US Treasury bought Yen on Friday, Washington’s first Yen-buying intervention alongside Tokyo since 2011, and signalled to banks that further action may follow. USD/JPY closed near 157.6 after trading close to 164 earlier in the period. Japan’s own operations remain suspected rather than confirmed. Reports suggest the two sides may unveil a joint policy as early as this week; how that framework is constructed will matter more than any single operation.

Elsewhere

• CAD: July jobs Friday, following strong Q2 GDP. Markets price ~70% for a December hike and fully price January 2027.

• NZD: Q2 employment Thursday, unemployment expected to tick up to 5.4% following the RBNZ’s pivot back to tightening.

Institutional Positioning

Visualizer from the Gauch Research Terminal (Premium Access Only).

Outlook

Upcoming News

• USD ISM PMI’s

• NZD UE Rate + Employment Change

• USD Non-Farm Payrolls

• CAD UE Rate + Employment Change

Wishing you a successful week ahead,

David Gauch — Founder, Gauch Research

USD

Near-term supported; hawkish skew dominant. Brent crude surging back above $100/bbl, up over 40% from pre-conflict levels, is the dominant driver, pushing US yields higher and reinforcing broad USD strength. The FOMC meeting on Wednesday is the week’s centrepiece. The Fed is widely expected to hold at 3.75%, but the decision may not be unanimous, Dallas Fed President Logan has explicitly stated she favours modestly higher rates. With Chair Warsh having abandoned explicit forward guidance, the post-meeting statement and press conference will be scrutinised for signals on a September hike. Soft core PCE (consensus +0.1% MoM) and Q2 GDP (+2.3% expected) on Thursday could temper hike expectations slightly. Overall skew: hawkish surprise more likely than dovish one.

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USD

Near-term neutral, medium-term bearish. The DXY hovers around 100. A broadly-based disinflationary surprise, the largest downside miss in core CPI since April 2025, has significantly raised the bar for further Fed tightening. That said, renewed Middle East tensions pushing Brent above $85/bbl are containing USD selling, as higher oil prices could eventually force the Fed’s hand. If geopolitical risks recede, the dollar is likely to weaken more materially. Upcoming US PMI data will be the next key trigger.

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Imagine Lionel Messi is about to play one of the biggest matches of the season, like tonight against Spain.

You could spend hours analysing his finishing ability, passing statistics, physical condition and recent form. All of those things matter.

But would you ignore who he’s playing against?

Would you ignore whether his teammates are injured?

Of course not.

Even the greatest player in the world doesn’t perform in isolation. His performance is heavily influenced by the environment around him.

Investing is no different.

A great company can still disappoint if the macro backdrop turns against it. A currency can weaken despite positive domestic data if another central bank becomes even more hawkish. Even the strongest investment thesis can struggle when liquidity dries up or financial conditions tighten.

Yet this is exactly where many investors fall short.

One thing I’ve noticed over the years is that almost everyone in financial markets has their own niche.

FX traders spend their day watching price action, central banks and positioning.

Equity investors dive into earnings reports, management guidance and valuation models.

Bond traders focus on yields and inflation expectations.

Crypto investors follow adoption, regulation and on-chain metrics.

None of these approaches are wrong.

The problem starts when investors become so specialised that they stop looking at the bigger picture.

No matter what you trade or invest in, every asset exists within the same economic environment.

That’s where macroeconomics comes in.

You Can Be Right... and Still Lose Money

Imagine you’ve spent weeks researching a small-cap company.

Revenue is growing.

Management has a strong track record.

Margins continue to improve.

The balance sheet looks healthy.

Compared to its peers, the company appears cheap.

From a bottom-up perspective, it looks like a fantastic investment.

Now imagine inflation starts picking up again.

Central banks realise inflation isn’t coming down as quickly as expected and decide to keep interest rates higher for longer.

Suddenly, the investment case changes.

Not because management made a mistake.

Not because demand disappeared overnight.

But because the environment changed.

If that company needs to refinance debt next year, it won’t be borrowing at 2% anymore. It may have to refinance at 6%.

Projects that once looked profitable suddenly become difficult to justify.

Banks tighten lending standards.

Consumers reduce spending because financing has become more expensive.

Investors demand a higher return for holding risk assets, putting pressure on valuations.

The company itself may not have changed at all.

But the world around it has.

That’s exactly why macro matters.

Every Market Is Connected

One mistake I often see is people treating markets as if they operate independently.

They don’t.

Inflation influences central bank policy.

Central banks move interest rates.

Interest rates drive bond yields.

Bond yields affect borrowing costs.

Borrowing costs influence investment decisions, consumer spending and corporate profits.

Eventually, all of that feeds into equity prices, currencies and credit markets.

Nothing moves in isolation.

Once you begin connecting these dots, markets become much easier to understand.

Macro Gives You Context

I’ve never believed that macroeconomics replaces fundamental analysis.

It doesn’t.

Understanding a company’s business model still matters.

Valuation still matters.

Technical analysis can still improve timing.

Sentiment and positioning still have their place.

But macro provides something none of those tools can.

Context.

Take two companies with identical financials.

One operates during a period of falling inflation, declining interest rates and abundant liquidity.

The other faces sticky inflation, restrictive monetary policy and tightening credit conditions.

Do you really expect both companies to perform the same?

Probably not.

The environment matters.

Sometimes it matters more than the company itself.

This Isn’t Just About Equities

People often associate macro investing with hedge funds or economists.

In reality, macro affects every participant in financial markets.

If you trade FX, you’re trading relative economic strength and monetary policy.

If you trade bonds, you’re trading inflation, growth expectations and central bank decisions.

If you invest in equities, you’re investing in future cash flows that are directly influenced by interest rates, liquidity and the business cycle.

Even real estate depends on financing costs and credit availability.

Macro isn’t a niche.

It’s the foundation upon which every market operates.

Looking Beyond the Headlines

Another reason macro is so valuable is that it forces you to think in terms of cause and effect.

Markets rarely move because of a single headline.

They move because expectations change.

A CPI release doesn’t matter because inflation printed 2.9% instead of 2.8%.

It matters because that number changes expectations for central bank policy.

Those expectations influence bond yields.

Bond yields influence currencies.

Currencies influence financial conditions.

Financial conditions influence corporate earnings and asset valuations.

The best investors don’t simply react to economic releases.

They think one or two steps ahead.

Building a Better Investment Process

The strongest investment process combines both perspectives.

Start with the macro picture.

Where are we in the business cycle?

Are central banks easing or tightening?

Is liquidity expanding or contracting?

What is the bond market telling us?

Only then move to the micro level.

Which sectors are likely to benefit?

Which companies are positioned to outperform?

Which assets are fighting against the macro backdrop?

This doesn’t mean you’ll always be right.

No framework can promise that.

But it gives you a structured way of thinking about markets instead of reacting to every headline that appears on your screen.

The Bigger Picture

One of the biggest mistakes investors make is believing that every investment can be analysed in isolation.

It can’t.

Every company, every currency, every bond and every asset class operates within a broader economic environment.

Sometimes that environment provides a tailwind.

Sometimes it creates headwinds that even the strongest businesses struggle to overcome.

That’s why macroeconomics isn’t about predicting every economic data release or becoming an economist.

It’s about understanding the forces that shape markets over weeks, months and even years.

Micro analysis helps you identify opportunities.

Macro analysis tells you whether the environment is likely to support them.

The best investors don’t ignore either side.

They understand that the strongest investment decisions are made when both the micro story and the macro backdrop point in the same direction.

Wishing you a successful week ahead,

David Gauch - Founder, Gauch Research

Looking back at the past week, we can confirm that the latest economic data has put some pressure on the recent strength of the US Dollar. While the releases only showed modest signs of renewed weakness, the key question going forward is whether this marks the beginning of a broader data trend. Until we see stronger confirmation, our core thesis remains unchanged.

Dollar Support Limited for the Time Being

This week’s US labor market report shifted some of the short-term risks, with the recent slowdown in US economic momentum appearing to maintain.

The US economy added 57K jobs in June 2026, well below the downwardly revised 129K recorded in May and below market expectations of 110K. It marked the weakest monthly job gain in four months, following three consecutive months of stronger-than-expected employment growth. Nevertheless, payroll growth remained broadly in line with the average monthly increase over the previous twelve months (+36K).

Employment continued to expand in professional and business services (+36K), social assistance (+25K), and healthcare (+22K). Meanwhile, leisure and hospitality lost 61K jobs, reflecting weaker-than-usual seasonal hiring, likely influenced by the FIFA World Cup. Employment remained largely unchanged across most other major industries, including construction, manufacturing, retail trade, transportation, financial activities, and government. In addition, payroll revisions reduced April and May employment by a combined 74K.

At the same time, the unemployment rate declined to 4.2% from 4.3%, coming in below expectations as labor force participation weakened. The number of unemployed individuals fell by 213K, while total employment declined by 507K. The labor force contracted by 720K, pushing the participation rate down to 61.5%, its lowest level since March 2021. The employment-population ratio also slipped to a four-year low of 59.0%, while the broader U-6 unemployment rate eased from 8.1% to 7.9%.

Current Fed Pricing

There are only limited event risks heading into next week, with attention already shifting towards July 14th, when US CPI inflation will be released alongside Fed Chair Warsh’s first semiannual testimony.

Without clear evidence of renewed disinflation, our broader Dollar bullish thesis remains intact. The recent pullback continues to provide attractive opportunities to build or add to existing Dollar long positions.

Upside Risk for the Yen

The combination of softer US data and a weaker Dollar has bought Japan’s Ministry of Finance additional time without the immediate need for another FX intervention.

We continue to expect the Bank of Japan to adopt a more hawkish stance over the coming months, with markets likely repricing the probability of a September rate hike, which is currently priced at only around 20%.

Japanese inflation is expected to remain elevated, requiring the BoJ to act more decisively in order to prevent another decline in real short-term interest rates.

Additional intervention risks could temporarily challenge our broader Dollar bullish view. However, this remains a market where relative strength versus weakness is critical. For that reason, we continue to avoid focusing on long USD/JPY exposure.

Recovery in Europe?

The Euro short has been one of the better-performing macro themes over recent months, primarily driven by relative economic data.

However, last week’s stronger Retail Sales and PMI releases provided renewed support for the Euro. Combined with the recent Dollar weakness, EUR/USD managed to establish a more solid near-term base.

Looking ahead, next week’s inflation data will be particularly important. Should second-round inflation effects continue to push price pressures higher, it would strengthen the ECB’s credibility in delivering another rate hike, providing further support for the Euro. Current market pricing for both the ECB through September remains broadly balanced.

EUR/USD vs. Economic Surprise Index

While the Citi Economic Surprise Index (Eurozone relative to the US) has recently turned sharply negative, reflecting stronger-than-expected US economic surprises, EUR/USD has remained comparatively resilient.

This divergence suggests that FX markets are currently placing less emphasis on short-term macro surprises and are instead focusing more heavily on future interest rate expectations, yield differentials, and cross-border capital flows.

Institutional Positioning

Visualizer from the Gauch Research Terminal (Premium Access Only).

Outlook

Upcoming News

• USD ISM Services PMI

• NZD Cash Rate + RBNZ Statement / Press Conference

• USD FOMC Meeting Minutes

• EUR CPI

• CAD UE Rate

Wishing you a successful week ahead,

David Gauch - Founder, Gauch Research

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This week, the focus was clearly on the latest FOMC meeting. As expected, the Federal Reserve left the Federal Funds Rate unchanged at 3.50% - 3.75%, in line with both our expectations and market consensus.

While the rate decision itself came as no surprise, investors were closely watching the first press conference led by new Fed Chair Kevin Warsh.

Suprising Hawkish Tones

The key takeaway from the press conference was not a shift in the Fed’s mandate, but rather a noticeable change in tone, which was also reflected in the shortened economic statement:

Warsh repeatedly emphasized the need to restore credibility on inflation following several years in which price pressures remained above target.

He acknowledged that the Federal Reserve has not consistently met its 2% inflation objective over the past five years and stressed that closing this gap will be a key priority going forward.

A New Approach to Communication

Another notable change was the significant reduction in the length of the economic statement (screenshot above). According to Warsh, Fed communication should focus on what truly matters rather than overwhelming markets with excessive details.

This philosophy was also reflected in the updated SEP projections. Unlike other FOMC participants, Warsh did not submit a Dot Plot projection, remaining consistent with his long-held criticism of forward guidance.

He further suggested that regular press conferences should only be held when meaningful policy changes or important information need to be communicated, signaling a potential shift toward less frequent and more targeted communication from the central bank.

Fed Review and Task Forces

Beyond monetary policy, Warsh announced the creation of several task forces that will review key aspects of Federal Reserve operations.

The areas under review include:

• Fed communication and forward guidance

• The size and structure of the Fed’s balance sheet

• The use and interpretation of economic data

• Productivity trends and labor market analysis

• Inflation measurement and the broader monetary policy framework

While these reviews are unlikely to affect markets immediately, they could ultimately shape the future framework of U.S. monetary policy.

Market Reaction

Markets interpreted the overall message as clearly hawkish, seen in the picture below:

The immediate reaction included:

• A stronger U.S. Dollar

• A selloff in Treasury bonds, particularly in the 2-Years

• Weakness across equity markets

• Lower gold prices

The rate decision itself was largely irrelevant. What mattered was the communication.

The first FOMC meeting under Chair Warsh marks a potential early signal of a new phase for the Federal Reserve, one that places greater emphasis on credibility in inflation, a more streamlined communication approach, and a broader reassessment of policy tools that have shaped the post-financial-crisis framework.

Going forward, the key area to monitor will be the evolution of the newly established task forces and their potential impact on the Fed’s broader operating framework. In particular, changes to communication strategy and forward guidance will be critical.

A less explicit and more conditional communication regime would likely increase macro volatility, especially in rates markets, with spillovers into equities and other risk assets.

Institutional Positioning

Before turning to this week’s outlook, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

Outlook

Upcoming News

• CAD CPI

• EUR PMI’s

• USD PMI’s

• AUD CPI

• USD Core PCE

• USD GDP

Wishing you a successful week ahead,

David Gauch - Founder, Gauch Research

Read more

No financial advice.

Welcome back to another edition of our SVC Update.

Since our last update, both the technical and fundamental landscape had remained largely unchanged until last Friday. The release of the latest Non-Farm Payrolls (NFP) report triggered significant moves across multiple asset classes and provided markets with fresh direction.

NFP Recap:

The U.S. economy added 172K jobs in May 2026, significantly exceeding market expectations of 85K, following an upwardly revised gain of 179K in the previous month. The report continues to highlight the resilience of the U.S. labor market.

Job growth was primarily driven by Leisure and Hospitality (+70K), led by Food Services and Drinking Places (+48K), Local Government (+55K), Healthcare (+35K), and Manufacturing (+7K).

On the other hand, employment within Financial Activities declined by 22K, mainly due to weakness in Insurance Carriers and Related Activities (-11K) and Commercial Banking (-3K).

Meanwhile, Transportation and Warehousing remained largely unchanged (+1K), while sectors such as Construction, Wholesale Trade, Retail Trade, Information, and Professional & Business Services showed little movement.

Additionally, upward revisions to previous months added further strength to the report, with March and April payrolls now estimated to be 93K higher than previously reported.

These figures align closely with the thesis outlined in our previous update, where we anticipated further upside potential for the U.S. Dollar. More importantly, they reinforce the Federal Reserve’s current policy stance: Higher for longer.

The immediate market reaction was visible in the U.S. 2-Year Treasury Yield, which climbed to 4.145% following the release, reflecting a reassessment of future monetary policy expectations.

Looking at the current Fed target rate probabilities, markets now assign a 43% probability of one additional rate hike and 22% of two hikes this year, replacing earlier expectations that were centered around potential rate cuts or prolonged holds.

The impact of this repricing was also clearly visible in volatility markets. After an initial adjustment period, the VIX surged sharply and broke above the key 20 level, signaling a meaningful increase in risk aversion.

At the same time, an already stretched equities market became vulnerable to profit-taking and systematic CTA selling pressure. As a result, U.S. equities experienced a significant decline, with major indices falling nearly 3% on Friday.

The latest data provides a clearer framework for assessing the current macroeconomic environment:

The U.S. economy remains remarkably resilient, supported by moderate but positive GDP growth, continued expansionary PMI readings, and a strong labor market.

At the same time, inflationary pressures remain persistent. Rising energy prices, driven by the ongoing conflict involving Iran, are increasingly feeding into broader inflation dynamics through secondary-round effects.

As a result, the Federal Reserve, under the leadership of Kevin Warsh, currently has little justification for initiating rate cuts. If anything, the risk is gradually shifting in the opposite direction.

While the base case remains a hold at upcoming meetings, the probability of further tightening has increased materially. This development continues to provide fundamental support for the U.S. Dollar while potentially maintaining downward pressure on risk assets and equities.

ECB in Focus:

On the other side of the Atlantic, attention next week will shift to the European Central Bank.

The ECB is expected to raise rates at its upcoming meeting. However, this outcome has already been largely priced into markets.

As a result, the Euro struggles to generate meaningful strength against the U.S. Dollar, particularly following last week’s disappointing GDP release, which came in at -0.2%.

Consequently, we maintain the same core macro theses outlined in our previous updates.

More details can be found in the Outlook section below.

Our Premium Members were already able to anticipate this move in EURUSD ahead of the market.

Below is a screenshot from the analysis that was shared in our Premium Subscriber Chat:

How it played out:

Institutional Positioning

Before turning to this week’s outlook, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

Outlook

Upcoming News

• US CPI + PPI

• BoC Overnight Rate

• ECB Main Refinancing Rate

• UK GDP

Wishing you a successful week ahead,

David Gauch - Founder, Gauch Research

No financial advice.

The dominant macro regime remains clear: US growth exceptionalism against a stagflationary rest-of-world backdrop.

Across the G10 universe, the growth narrative is now holding almost exclusively in the United States, while most other major developed economies are simultaneously rolling over. The divergence has become increasingly difficult to ignore.

The US economy continues to run hot with persistent inflationary pressure. China, meanwhile, is still expanding, supported by rising PPI dynamics despite weakening domestic consumption. Europe and the UK are cooling with inflation still elevated, Japan has surprisingly softened against its own tightening narrative, and Australia just delivered its first genuine cooling print in nearly twelve months.

What ties all of this together is not equities, at least not yet. Equity markets remain relatively stable because US growth still acts as a global buffer. The real stress is emerging elsewhere: the long-end of global bond curves. That is where the regime is currently being repriced in real time.

The Hawkish Consensus Starts Cracking

Between May 20th and May 23rd, the global hawkish macro consensus broke simultaneously across four out of five major data points.

• UK CPI declined to 2.8%, coming in 50bps below consensus expectations.

• Australia’s unemployment rate jumped to 4.5%, challenging the core hawkish RBA narrative, although reversal risk remains elevated due to changes in labor market measurement methodologies.

• Eurozone Flash PMIs fell to 47.5, accompanied by explicit recessionary language.

• Japan’s core CPI dropped to 1.4%, marking a four-year low immediately following the Iran-related energy shock.

Only the Federal Reserve maintained its hawkish tone, with FOMC minutes confirming a continued tightening bias and four dissenting votes.

At this point, virtually every major bank expects the Fed to remain on hold through year-end, with isolated calls for additional hikes still appearing. But structurally, the implication is larger: while the Fed remains hawkish, the rest of the G10 central bank complex is beginning to reverse.

The USD Differential Story Has Broadened

The USD strength narrative is no longer narrowing, it is expanding.

If four major G10 hawkish regimes weaken simultaneously while the Fed remains relatively firm, capital naturally flows into the dollar on an increasingly asymmetric basis.

This is no longer just a rate differential story against one or two currencies. It is becoming a broader global divergence trade.

European & UK Disinflation Remains Fragile

The recent decline in inflation across Europe and the UK is not primarily demand-driven.

Instead, it is heavily influenced by temporary energy and electricity price mechanics:

• the upcoming UK energy cap reset on July 1st,

• and Brent-driven base effects across the Eurozone.

In other words, current disinflation dynamics remain fragile and highly reversible.

The Carry Trade Unwind Has Softened (Not Disappeared)

FX markets have already started repricing a partial unwind in Yen-funded carry trades, but the move has become materially flatter in recent weeks.

Importantly, Japan has not lost its underlying Q1 growth momentum, it has mainly lost part of its inflation support.

That distinction matters.

China Still Matters More Than Markets Admit

One often overlooked point: global growth is not solely dependent on the US.

China continues to provide a secondary growth pillar, and this matters directly for global cyclicals and commodity pricing. It is one of the primary reasons why:

• Iron Ore continues to hold near $110,

• and AUD has avoided a disorderly breakdown despite softer domestic data.

Without Chinese stabilization, the current macro backdrop would likely look significantly weaker.

Equities: Still Structurally Long

When looking at equities, the directional bias remains clear: long risk assets.

Fundamentally, current market performance continues to be supported by earnings growth, something we have highlighted repeatedly in previous updates.

Even though NVIDIA failed to generate another euphoric upside reaction, aggregate earnings growth across the index still stands near +28%.

Despite tighter financial conditions, elevated rates, and increasingly fragmented global macro dynamics, corporate earnings continue to provide meaningful support for equities.

And for now, that remains the anchor underneath the market.

Institutional Positioning

Before turning to this week’s outlook, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

Outlook

Upcoming News

• AU CPI

• RBNZ Cash Rate

• US Core PCE Price Index

• US GDP

• CA GDP

Wishing you a successful week ahead,

David Gauch - Founder, Gauch Research

No financial advice.

The broader market environment has shown little change over recent days and weeks. Geopolitical tensions surrounding the Strait of Hormuz remain elevated, with no clear resolution in sight. However, markets have increasingly moved past headline-driven volatility. The focus has shifted back toward macroeconomic fundamentals and their underlying signals.

Today’s key focus is the latest NFP report, which on the surface appeared relatively solid, but tells a very different story once broken down in detail.

NFP Lookback

April payrolls came in at +115K.

On the surface, this remains consistent with a still stable labor market. However, the internal composition of the report paints a more cautious picture.

The main issue was not the headline figure, but rather the continued negative revisions and weakening breadth.

February payrolls were revised lower again, while March saw only a marginal upward adjustment. This brings the three-month average to approximately +48K jobs per month.

From a macroeconomic standpoint, this is below the level required to sustain a growing economy. Estimates suggest that the US needs roughly +80K to +100K jobs per month simply to keep up with population growth.

In other words, employment growth is no longer keeping pace with structural labor supply.

At the same time, the unemployment rate held steady at 4.3%. However, this stability is increasingly misleading. Labor force participation continues to decline, indicating that more individuals are exiting the workforce rather than actively participating in it.

On the surface, conditions appear stable. In reality, underlying momentum is weakening.

A Labor Market Driven by Narrow Sectors

One of the most important characteristics of the report is the extreme concentration of job creation.

Almost all employment gains in April were driven by a small number of sectors.

Healthcare accounted for nearly half of total payroll growth. However, this is largely structural in nature, driven by demographics, aging populations, and long-term care demand rather than cyclical strength.

Transportation and warehousing also contributed positively, mainly supported by continued growth in delivery and logistics services linked to e-commerce.

Retail employment showed a clear divergence. Discount-focused retailers added jobs, while traditional department stores continued to cut staff. This reflects an ongoing shift in consumer behavior toward value-oriented spending and reduced discretionary consumption.

Combined, these sectors accounted for more than 90% of total job growth.

This level of concentration is not typical of a healthy expansion phase. It reflects an economy that is still functioning, but increasingly reliant on defensive and non-cyclical areas of employment.

Weakness Spreading Across Cyclical Sectors

The deterioration is no longer isolated.

Federal employment continued to decline, reflecting ongoing fiscal tightening and restructuring efforts.

More importantly, weakness is increasingly visible in cyclical private sectors.

The information sector, including software, telecom, and publishing, continued to report job losses. This suggests that the post-pandemic normalization phase is transitioning into a more structural adjustment, driven by automation, efficiency gains, and prior overhiring during the tech cycle.

Manufacturing returned to negative territory. While headline losses remain limited, internal dynamics show more industries cutting jobs than adding workers, which is a more meaningful signal for forward momentum.

Financial services also recorded another month of net job reductions. Given the sector’s sensitivity to credit conditions and liquidity, this is worth monitoring closely.

The Most Important Metric in the Report

One of the most significant data points was not the headline payroll number, but a structural shift in labor utilization:

Part-time for economic reasons surged by +445K in a single month.

Nearly 5 million individuals are now working part-time involuntarily due to reduced hours or inability to secure full-time employment.

Historically, this is one of the clearest late-cycle labor indicators. Companies typically do not begin with layoffs. They first reduce hours, and only later transition into workforce reductions.

This pattern increasingly appears to be underway.

At the same time, newly unemployed individuals increased notably, signaling that labor market stress is not only latent but actively emerging.

Market Interpretation vs Underlying Reality

Markets largely interpreted the report as “soft but manageable.”

The headline number was not weak enough to trigger immediate concern, but the internal structure suggests a more fragile backdrop.

Both major labor indicators are now aligned in showing slower hiring, weaker participation, and deteriorating employment quality.

For several months, divergences between surveys allowed for selective interpretation. That gap is now narrowing.

In addition, the shift from government-related job cuts toward cyclical private sector weakness is particularly important, as it carries stronger recession implications.

There is also a clear deterioration in job quality. Higher-paying sectors continue to lose employment, while lower-paying service sectors absorb job growth. While headline payrolls remain positive, aggregate purchasing power is eroding.

Labour Outlook

The direction of travel in the labor market is becoming increasingly clear.

Hiring breadth continues to weaken.

Labor force participation continues to decline.

Cyclical sectors are now contributing negatively.

And overall job creation remains below replacement-level requirements.

Unless there is a meaningful rebound in hiring activity over the coming months, the probability of a broader economic slowdown in the second half of the year continues to rise.

At present, the labor market is not breaking down in a disorderly way. However, it is gradually losing momentum.

Policy Context

Under normal circumstances, such a labor market profile would strengthen the case for policy easing.

However, monetary policy remains primarily focused on inflation dynamics.

As long as headline payrolls remain stable enough and inflation remains sticky, there is limited incentive for the Federal Reserve to react aggressively to underlying labor weakness.

This is why markets did not materially reprice rate expectations following the report.

For now, the key variable remains inflation, and more specifically, the upcoming CPI releases.

If labor market softening continues while inflation gradually eases, markets are likely to begin pricing a more dovish policy path into the second half of the year.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

AUD Cash Rate (Previous: 4.10%, Forecast: 4.35%, Actual: 4.35%)

The Reserve Bank of Australia delivered a 25 basis point rate hike, bringing the cash rate to 4.35%, fully in line with market expectations. This marks the third consecutive tightening move in 2026, effectively reversing the easing phase seen in the prior year.

The central bank’s decision was driven primarily by a renewed inflation impulse that has emerged since the second half of 2025 and has continued into 2026. According to the statement, inflation dynamics have been reinforced by both domestic and external factors, with the RBA explicitly highlighting rising capacity constraints within the Australian economy.

A key driver of the inflationary pressure has been the persistent increase in energy-related costs. The ongoing geopolitical tensions in the Middle East, particularly around energy supply routes, have translated into higher fuel and commodity prices. These external shocks have fed through into both business input costs and consumer-facing prices.

The RBA’s updated projections indicate that inflation is expected to peak at a higher level than previously anticipated before gradually moderating. However, this normalization is conditional on demand slowing and supply-side constraints easing over time.

Importantly, the central bank maintained a data-dependent stance, signaling that future policy decisions will remain sensitive to incoming inflation and labor market data. While the tightening bias remains intact, the RBA acknowledged increasing uncertainty around the persistence of external price pressures.

Overall, the decision reflects a policy stance that is increasingly focused on containing second-round inflation effects, even at the cost of slower near-term growth.

ISM Services PMI (Previous: 54.0, Forecast: 53.7, Actual: 53.6)

The ISM Services PMI edged lower to 53.6 in April 2026, slightly below the previous reading of 54.0 but broadly in line with expectations. Despite the marginal decline, the index remains firmly in expansionary territory, indicating continued growth in the US services sector.

The underlying components, however, present a more nuanced picture. Business activity and output rose to 55.9, suggesting that core service demand remains relatively resilient. This increase was largely attributed to sustained operational activity despite higher input costs and ongoing external shocks.

A notable divergence emerged within demand indicators. New orders declined significantly by 7.1 points to 53.5, signaling a cooling in forward-looking demand momentum. At the same time, the backlog of orders improved slightly, suggesting that existing demand is still being processed, but fresh inflows are moderating.

Employment remained weak, registering below the 50 expansion threshold for the second consecutive month. Although it improved modestly to 49.4, the reading continues to indicate contraction in services employment, pointing to a labor market within the sector that is losing momentum.

One of the most significant developments was the continued rise in price pressures. The prices paid component surged to 70.7, the highest level since 2022. Survey respondents attributed this increase to higher fuel, energy, freight, and raw material costs. Additional upward pressure stemmed from commodity-specific inflation in metals and construction-related inputs, as well as tariff-related cost increases.

Overall, the report reflects an economy where services activity remains stable, but inflationary pressures and demand deceleration are increasingly visible beneath the surface. The combination of weakening new orders, persistent price acceleration, and soft employment suggests a gradual transition toward a lower growth environment with sticky input cost inflation.

NZ Unemployment Rate (Previous: 5.4%, Forecast: 5.4% Actual: 5.3%)

New Zealand’s unemployment rate declined slightly to 5.3% in the March 2026 quarter, marking a modest improvement from the previous reading of 5.4% and coming in marginally below expectations.

The decline in unemployment was primarily driven by a small reduction in the number of unemployed individuals, which fell by approximately 2,000 to 163,000. At the same time, employment increased by 4,000 to 2.89 million, contributing to a slight improvement in headline labor market conditions.

Despite this improvement, broader labor market indicators continue to suggest underlying slack. The employment rate remained unchanged at 66.7%, indicating that gains in employment are not materially shifting overall participation dynamics.

More importantly, the labor force participation rate edged lower to 70.4%, slightly below both the previous quarter and expectations. This decline suggests that a portion of the working-age population is gradually exiting the labor force, rather than actively seeking employment. From a structural perspective, this can partially offset increases in unemployment and distort the apparent strength of the labor market.

The underutilization rate, which captures broader spare capacity in the labor market, stood at 12.9%, remaining elevated compared to the same period last year. This indicates that while headline unemployment has improved modestly, there is still a significant share of underemployed or marginally attached workers.

Overall, the data points to a labor market that is stabilizing at the margin, but still operating with elevated slack. The improvement in unemployment is not yet accompanied by a meaningful acceleration in participation or broad-based labor demand.

CAD Unemployment Rate (Previous: 6.7%, Forecast: 6.7% Actual: 6.9%)

Canada’s unemployment rate rose to 6.9% in April 2026, marking the highest level in six months and coming in above both the previous reading and market expectations.

The increase was driven primarily by a rise in the number of unemployed individuals, which increased by 51,200, or 3.4%, to 1.566 million. This reflects a combination of both job losses and increased labor market entry, suggesting rising difficulty in absorbing new entrants into employment.

At the same time, the labor force expanded by 33,500, indicating that more individuals are actively seeking employment. This pushed the labor force participation rate slightly higher to 65%, which partially offsets the rise in unemployment but does not change the underlying trend of softening labor demand.

Net employment declined by 17,700, missing expectations for a modest gain. This unexpected contraction highlights weakening momentum in job creation and suggests that labor demand is beginning to cool more visibly.

A notable feature of the report is the stability in long-term unemployment. The share of individuals unemployed for more than six months remained at 22.5%, significantly above the long-term average of 17.1%. This indicates that a meaningful portion of unemployed workers is experiencing prolonged difficulty in re-entering the labor market.

The monthly layoff rate remained steady at 0.6%, consistent with pre-pandemic norms. However, the combination of rising unemployment and declining net job creation suggests that labor market conditions are gradually deteriorating rather than experiencing a sharp downturn.

Overall, the Canadian labor market is entering a phase of gradual softening, characterized by rising unemployment, weak net job creation, and stable but elevated structural unemployment measures.

Summary & Outlook

Upcoming News

• US CPI

• US PPI

• Fed Chair Nomination Vote

• UK GDP

• US Retail Sales

Wishing you a successful week ahead,

David Gauch

Founder, Gauch Research

Despite a relatively uneventful news flow this week, most equity indices, particularly in tech, are trading firmly in positive territory. Even the renewed strength in oil prices, driven by Iran’s refusal to engage in further peace negotiations, appears to have had little impact on equities, at least when it comes to tech. Because, in many ways, we have returned to a familiar market regime where anything related to AI continues to rally, while the rest of the market lags behind.

That said, it is worth asking why equities were so quick to dismiss the still unresolved geopolitical tensions between the United States and Iran after only a brief pullback. Two potential explanations come to mind.

• The market may be anticipating that pressure on Iran will increase significantly due to the risk of imminent shut ins, which could begin within the next two weeks.

• Alternatively, one could argue that the US economy has, for now, remained largely insulated from rising energy prices. The impact is mainly felt at the gas pump, while higher fuel costs are likely more than offset by the tax relief measures introduced under Trump’s One Big Beautiful Bill.

Whatever the underlying reason, the key takeaway is that geopolitics appears to be fading into the background for now. This is particularly relevant as attention may soon shift towards a potentially significant development on the monetary policy front, namely the prospect of a new Fed Chair.

To recap, amid investigations by the Department of Justice into whether Jerome Powell may have provided misleading testimony to Congress last year. Powell’s refusal to respond to a formal questionnaire from the investigating prosecutor effectively led to a political deadlock. A compromise solution now seems to have emerged, and the charges against Jerome Powell appear to have been dropped. As a result, both sides may find a face saving outcome, and there should be little standing in the way of Warsh’s confirmation.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

CAD CPI y/y (Previous: 1.8%, Forecast: 2.5%, Actual: 2.4%)

Canada’s headline inflation rate rose sharply to 2.4% in March 2026 from 1.8% in the prior month, matching the highest level in a year but coming in slightly below expectations of 2.5%. The increase reflected the early impact of the Middle East conflict on consumer prices, as disruptions to tanker flows from the Persian Gulf led to global energy shortages. Energy inflation rebounded to 3.9% from a prior deflation of 9.3%, pushing transportation inflation up to 3.7% from -0.8% in February. This was accompanied by faster price growth in shelter at 1.7% from 1.5% and in recreation and education at 2.6% from 0.5%. At the same time, base effects linked to the reintroduction of GST and HST taxes continued to influence food prices, with food inflation easing to 4.0% from 5.4%. On a monthly basis, CPI increased by 0.9%, largely driven by a 21.2% jump in gasoline prices.

NZD CPI y/y (Previous: 3.1%, Forecast: 2.9%, Actual: 3.1%)

Annual inflation in New Zealand came in at 3.1% in Q1 2026, unchanged from the previous quarter’s 1.5 year high and above expectations of 2.9%, exceeding the RBNZ’s 1 to 3% target range. The main drivers were housing and household utilities, which rose 3.4%, supported by a 12.5% increase in electricity prices and an 8.8% rise in local authority rates and payments. Food prices remained elevated at 4.0% compared to 4.3%, mainly due to higher meat and poultry costs, while transport inflation accelerated to 3.3% from 2.6% on the back of rising private transport expenses. Additional upward pressure came from alcoholic beverages and tobacco at 2.8% from 2.4%, health at 4.1% from 0.7%, and miscellaneous categories at 2.2% from 2.1%, while inflation moderated in clothing at 1.3% from 1.7%, communication at 4.6% from 4.8%, and recreation and culture at 2.2% from 3.2%, with education steady at 2.5%. On a quarterly basis, CPI rose 0.9%, accelerating from 0.6% previously.

GBP UE Rate (Previous: 5.2%, Forecast: 5.2%, Actual: 4.9%)

The UK unemployment rate declined to 4.9% in the three months to February 2026, below expectations of 5.2%. The drop in unemployment coincided with an increase in economic inactivity, suggesting that some individuals exited the labor force rather than secured employment. The number of unemployed fell by 60,000 to 1.78 million, mainly among those out of work for less than six months, while 95,000 additional individuals left the labor market, pushing total inactivity to 9.116 million and lifting the inactivity rate to 21.0%. Employment rose by 24,000 to 34.328 million, with the employment rate edging up to 75.0%, largely due to gains in full time jobs, while the number of people holding second jobs declined to 1.273 million, representing 3.7% of total employment.

GBP CPI y/y (Previous: 3.0%, Forecast: 3.3%, Actual: 3.3%)

UK inflation increased to 3.3% year on year in March 2026 from 3.0%, in line with expectations and marking a three month high. The rise was partly driven by transport costs, which climbed 4.7%, the fastest since December 2022, with motor fuel prices up 4.9% as a result of the conflict with Iran. Petrol prices rose by 8.6 pence per litre and diesel by 17.6 pence. Housing and household services increased by 4.3% from 4.2%, driven by a 95.3% surge in domestic heating oil, the strongest since September 2022. Food and non alcoholic beverages rose 3.7% from 3.3% and services inflation increased to 4.5% from 4.3%, while clothing prices fell by 0.8%, the largest decline since March 2021. On a monthly basis, CPI rose 0.7%.

USD Retail Sales (Previous: 0.7%, Forecast: 1.4%, Actual: 1.7%)

US retail sales increased by 1.7% in March 2026, exceeding expectations of 1.4% and following a revised 0.7% gain in February, marking the strongest growth since March 2025. The increase was largely driven by a record 15.5% surge in gasoline station sales as fuel prices rose amid the Iran conflict, while overall consumer spending remained resilient across most categories, likely supported by larger tax refunds. Gains were recorded across motor vehicles at 0.5%, furniture at 2.2%, electronics at 0.9%, building materials at 0.7%, food and beverages at 0.7%, health and personal care at 0.5%, general merchandise at 1.0%, and nonstore retailers at 1.0%, while restaurant and bar sales edged up 0.1%. Core retail sales rose 0.7%, above expectations of 0.2%.

USD Flash Manufacturing PMI (Previous: 52.3, Forecast: 52.5, Actual: 54)

The S&P Global US Manufacturing PMI increased to 54.0 in April 2026 from 52.3, beating expectations of 52.5 and marking the strongest improvement in factory conditions since May 2022, driven by a four year high in production and the fastest growth in new orders since May 2022. Inventory accumulation also contributed positively, while supplier delivery times lengthened significantly, partly due to supply disruptions linked to the Middle East conflict. Employment was the only negative component, declining for the first time since July 2025.

USD Flash Services PMI (Previous: 50.5, Forecast: 50, Actual: 51.3)

The S&P Global US Services PMI rose to 51.3 from 50.3, well above expectations of 50, reflecting a rebound in services activity following the initial impact of the Iran conflict. New business increased slightly but remained below the average of the past two years as affordability concerns persisted, while input costs rose at the fastest pace since December, prompting firms to raise prices at the strongest rate in 45 months. Employment edged higher and business sentiment improved modestly, although it remained well below levels seen last year.

Summary & Outlook

Upcoming News

• FED, ECB, BoJ, BoC, BoE Policy Rate + Statement

• AUD CPI

• USD, CAD GDP

• USD Core PCE Price Index

Wishing you a successful week ahead,

David Gauch

Founder, Gauch Research

No financial advice.

Hope vs. Reality

What I’ve observed in equities over the past few weeks hasn’t been driven by fundamentals, but rather by two forces: hope vs. reality.

This dynamic was once again clearly visible this week. We started with headlines the U.S. also moved to block the Strait of Hormuz, potentially intercepting and restricting Iranian vessels heading toward China. At first glance, the idea seems questionable, but the implications are significant. Estimates suggest that around 30 to 45% of Iran’s revenues come from oil exports. At the same time, China, which is heavily dependent on imported oil, would also feel the impact of such a disruption.

Markets initially priced this as an escalation at the open, but the move was quickly reversed.

Midweek, stronger than expected producer price inflation data, combined with renewed hopes of de-escalation, pushed the S&P 500 to new all time highs. One key driver behind the sharp move from minus 8% to plus 3% within just 13 trading days has likely been positioning. CTAs and market makers, operating in a positive gamma environment, were forced to buy both dips and rallies to maintain hedged books.

As a result, even slightly positive news had a strong impact on the upside, while negative headlines were absorbed relatively quickly.

Looking ahead, gamma exposure is expected to remain positive in the coming weeks, suggesting continued structural support for the market. Current GEX levels indicate potential put support around 6,800 on the S&P 500, with call resistance near 7,200.

However, weekend headlines suggest that hopes for a resolution of the conflict may be premature. Trading purely based on headlines increasingly resembles a coin toss. What remains worth monitoring, though, is the flow through the Strait of Hormuz, which continues to operate at record lows.

A definitive reopening would likely ease pressure on the Federal Reserve and other central banks. In such a scenario, the Fed could still deliver another rate cut this year.

On the other hand, a prolonged disruption would complicate the outlook, even for more dovish policymakers, and could reinforce a higher for longer stance. Further escalation could even force rate hikes globally, which would likely erase recent gains in equity markets rather quickly.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

US Producer Price Inflation m/m (Previous: 0.5%, Forecast: 1.1%, Actual: 0.5%)

In March 2026, US producer prices experienced a 0.5% month-over-month increase, matching the growth rate of the previous period. However, this growth fell short of the market’s expectations of 1.1%. Goods prices surged by 1.6%, marking the largest increase since August 2023. This surge was primarily driven by an 8.5% jump in energy costs, largely attributed to the ongoing Iran conflict. On the other hand, final demand food prices declined by 0.3%.

In the services sector, prices remained unchanged after a 0.3% increase in February. Within this category, transportation and warehousing costs rose by 1.3%, while other final demand services saw a 0.1% increase. These increases offset a 0.3% decline in trade service margins.

Year-over-year, producer prices rose by 4%, the largest increase since February 2023. However, this growth still fell short of the expected 4.6%. The core index, which excludes food, energy, and trade services, experienced a 0.2% month-over-month increase. This growth rate was slower compared to the 0.5% gains seen in both January and February. Nevertheless, the core index climbed 3.6% year-over-year.

UK GDP m/m (Previous: 0.1%, Forecast: 0.1%, Actual: 0.5%)

The UK’s GDP grew by 0.5% month-on-month in February 2026, surpassing expectations and January’s revised 0.1% growth. This marks the strongest growth since January 2024, with services contributing 0.5% to the growth (up from 0.1% in January). The largest positive contribution came from administrative and support service activities, which rose by 2.0%. This growth was driven by a rebound in employment activities, which increased by 2.5%, along with gains in wholesale and retail trade and repair of motor vehicles, which saw a 0.7% increase.

However, these gains were partially offset by a 0.3% decline in accommodation and food services. Production also increased by 0.5%, reversing previous declines. This growth was supported by mining and quarrying, which saw a 3.9% increase, and energy supply, which increased by 1.5%. Construction grew by 1.0%, with private housing leading the growth. On a yearly basis, GDP expanded by 1.0%, marking the strongest growth since September last year. The latest data comes before the escalation in the Middle East. As a net energy importer, the UK is vulnerable to global energy price shocks due to disruptions in oil and gas exports in the region.

Upcoming News

• US Retail Sales

• CAD, GBP, NZD CPI

• Flash PMI’s

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research