The recent economic data has presented many contradictions, leading to significant divergence in market sentiment. Equity markets have entered a phase of narrow fluctuations, with the NASDAQ and cryptocurrencies experiencing small-range volatility. Gold and domestic stocks have also seen some pullbacks, with no clear trend emerging. The current trading environment is challenging. Thus, in the short term, we prefer to maintain our current risk exposure, look for opportunities to reduce positions, and wait for clear signals from CPI and unemployment rate data to determine our direction. Our long-term positions in cryptocurrencies, as mentioned last week, remain unaffected.
Monday: The US May ISM Manufacturing PMI is due, with a previous value of 49.2 and an expected value of 49.8. Given last week’s better-than-expected GDP and the rise in jobless claims, we lean bearish. Increased jobless claims and some weak high-frequency consumption data suggest caution. However, we do not recommend trading on this data point. A good PMI reading implies a strong economy and no hard landing but also indicates that rate cuts are still far off. Conversely, a poor PMI suggests an increased risk of a hard landing but closer rate cuts, making it difficult to trade on.
Wednesday: The ISM Services PMI is expected at 51, with a previous value of 49.4. Our outlook aligns with that for manufacturing PMI. We do not recommend high-leverage trades, preferring to maintain current spot exposures.
ADP Non-Farm Employment Change: Expected at 175,000, down from 192,000, reflecting market expectations of a cooling economy. This adds to the current market paradox: good employment data suggests sustaining high interest rates, while poor data increases the risk of a hard landing.
Friday: The official Non-Farm Payrolls and unemployment rate data are due, similar to PMI and ADP employment data, representing supply-side indicators. We do not recommend taking a position here. We believe it is prudent to wait for a clear market direction, which will likely emerge after the release of next week’s CPI data and the subsequent FOMC meeting. Until then, we suggest reducing risk exposure to avoid potential bi-directional volatility.
In summary, while there are short-term trading opportunities, we lack a clear directional bias. The market is in a state of indecision, with balanced forces on both the bullish and bearish sides. Guidance from US CPI inflation data is crucial. As high-frequency data is released this week, we will further analyze the potential direction of CPI data and adjust our strategies accordingly before the start of the next week.