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Global markets inched higher on Monday as investors sifted through the latest musings from Federal Reserve policymakers. At the same time, the euro took a tumble against the dollar after the eurozone’s business activity data fell flat. It’s a fresh look at the global economy's health—and not everyone’s feeling great.

In the U.S., services are still carrying the torch, while manufacturing? Well, it’s limping along, but not enough to spook anyone. It’s the classic tale of a two-speed economy: services flexing their muscles while manufacturing keeps shrinking in the background.

But Europe? That’s where things get ugly. Monthly PMI reports revealed a bigger-than-expected contraction in major economies, sending investors rushing for the safety of bonds and the yen as the euro felt a bit of pain. However, broader US dollar sell-offs tend to be fleeting in an aggressive US rate-cut environment; hence, the EURUSD is still trading above 1.1100 .

By afternoon trading, U.S. stock indexes were mixed, which isn’t surprising after the record highs hit last week post-Fed's jumbo rate cut. Investors have been riding high on the soft-landing narrative by Chair Jerome Powell—50 basis points with nary a spooky heart palpitation from equity markets. But after last week’s adrenaline rush, don’t be shocked if the rally hits a speed bump or takes a breather.

Fed policymakers were in the spotlight as well. Minneapolis Fed President Neel Kashkari was all in, calling the half-point cut the “right decision,” while Chicago Fed President Austan Goolsbee hinted there might be “many more rate cuts” to come over the next year. Meanwhile, Atlanta Fed President Raphael Bostic stuck to the script, suggesting that inflation and unemployment are nearing “normal” levels.

The Fed’s key message? “We can’t afford to be behind the curve.” And, for now, they’re sticking the landing. So far, so good!

And so the debate rages on—50 or 25 basis points? Markets are torn, with traders pricing in 75bps of total easing by the end of the year.

Counterintuitively, U.S. 10-year Treasury yields ticked higher as bond investors dialled back their near-term recession fears. Meanwhile, a whiff of reflation started to seep into the commodity markets, adding a twist to the bond and currency market narrative.

One of the market’s favourite FX barometers for gauging the global economic cycle—EUR/AUD—is heading lower, which perfectly lines up with a reflationary environment and a steeper U.S. yield curve. Adding fuel to the fire, today’s action on the Australian and Chinese fronts is worth watching. The Reserve Bank of Australia is expected to stick to its semi-hawkish guns, positioning itself as the reluctant G10 rate cutter. Meanwhile, there's speculation that China could roll out domestic support measures during today’s press conference featuring the People's Bank of China and two other agencies.

EUR/AUD already retested recent lows overnight( 1.6250), and if the stars align—i.e., a US soft landing materializes and China delivers big—this pair could be eyeing a drop toward the 1.60 area in the weeks and months ahead.

That said, the jump in 10-year yields after a Fed cut isn’t anything unusual—they typically spike before drifting back down, often to levels lower than where they started when the Fed first cut rates. But to push both yields and the U.S. dollar lower, we’re going to need something more—likely in the form of a weak employment report.

For bond bulls and dollar bears, let’s not beat around the bush—GDP, retail sales, and the usual economic suspects are fine and dandy, but are they the real game-changers here? It’s all about those payroll numbers. Traders are watching the magic number 150,000—the so-called "replacement level." Once the job count dips below that mark (and heads up, we’re already there), unemployment starts creeping up like an unwelcome guest at the party.

Here’s where it gets juicy: four of the last five payroll reports have been flirting with that threshold. So, the million-dollar question is—how low does this number need to drop before the 10-year yield and the US dollar dramatically turn lower? A negative print would probably be the market equivalent of a mic drop. But if we see numbers in the 50k to 100k range, it could still set off alarm bells loud enough to send traders scrambling. And trust me, in this hypersensitive market, even a slight wobble in the jobs data could send a ripple effect through everything from yields to equities.

Bottom line: payrolls are the star of the show, and we’re just waiting to see if they hit us with a plot twist or another episode of "meh".

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