In a monumental week for macro watchers, everyone is hoping for calm while bracing for the inevitable storm of volatility. The marquee macro event, of course, is the July jobs report. With the market catching a giddy case of "rate cut fever" over the past two weeks, we find ourselves at that proverbial inflection point.

Yet, the little policy devil on our shoulder whispers reminders that since the Fed started hiking rates back in March '22, the big market blunder has been prematurely anticipating rate cuts—way too early and far too aggressively. It's like expecting dessert before finishing the main course.

But let's not kid ourselves; there's more than enough reason for volatility to spike this week. Beyond the jobs report, we have Treasury borrowing estimates and refunding details to contend with. Stock pickers will be dissecting earnings from heavyweights like Amazon, Apple, Meta, and Microsoft, while the FX crowd will be playing rock-paper-scissors in anticipation of potentially explosive Bank of England (BoE) and Bank of Japan (BoJ) meetings.

And let's not forget the Fed. While it has the potential to rock the boat, the market seems pretty convinced that September will mark the beginning of the rate-cut cycle. Many investors hope for a swift descent, like an express elevator dropping several floors rapidly.

Following last week's market turbulence, investors' nerves are understandably frayed as they navigate the macroeconomic and central bank policy minefield ahead. It wouldn't be surprising to see folks scrambling to reduce risk and batten down the hatches.

On the other hand, Friday's relief rally offered some much-needed respite after a gruelling week in which Big Tech dragged stocks lower. The S&P 500 looks arguably cleaner now, thanks to some timely CTA house cleaning (or profit-taking, if you prefer). The big question for the brave-hearted is whether this has opened a window of opportunity to rebuild risk exposure and carry trades.

On the macro front, it's a week to buckle up. A significant downside miss on the NFP could spell "Bad News Is Bad News" for stocks, while an upside beat might reduce the chances of one of those Fed rate cuts baked into the 2024 cake. This could strengthen the US dollar and spoil everyone's rate-cut party.

On the FX front, the flip-flopping Bank of Japan keeps everyone guessing. With no policy smoke signals from Tokyo trading desks last week, other than price action into the Fix, we're left in a middling zone. But even in the absence of a major volatility event that could crater carry trades, downward pressure on the yen should continue easing. This is due to more investors reversing their bets against the currency, anticipating the gap between Japanese and U.S. interest rates to narrow later this year.

While I'm happy to TWAP (Time-Weighted Average Price) out a chunk of my long JPY positions today, I'll still maintain a decent long into the BoJ meeting. If you've been following my JPY critiques, you'll know we start building our BoJ views and entering these positions 4 to 5 weeks ahead of the meeting. But that's what you should be doing for all currency trades. The last thing you want is to enter a trade when it hits Bloomberg news—it's generally too late by then. The bulk of the move has already happened, and it becomes very risky to hold the trade into a central bank meeting, especially if two-way risk builds.

THE VIEW

With the market in a fever pitch over potential US rate cuts, any weakness in the JPY should be seen as a fader's delight. There's mounting political pressure for the BoJ to hike rates, and the Bank of Japan is renowned for being one of the most politically observant central banks. Hence, given the right nudge, there's a decent chance they might decide to hike. This brings us to their bond-buying proclivity, where expectations are moderately set.

The BoJ is expected to release plans on how it will reduce its massive purchases of Japanese government bonds (JGBs) over the next one to two years—another step towards loosening its grip on the market and normalizing monetary policy. While various views have emerged, the broad consensus is that the BoJ will gradually cut its monthly purchases of JGBs to 3 trillion yen ($19.52 billion) from the current pace of 6 trillion yen. Anything less could spell disappointment for the JPY Bulls, who might feel like they've just opened a can of flat sod

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