Happy Thursday, and welcome to our weekly positioning watch, brought to you just before the crucial NFP report tomorrow. From what we see across markets, it looks like participants are starting to take risk off the table in equity space ahead of the report. Markets have struggled this week to settle on a clear narrative for USD assets, especially USD rates. The ISM services report was weak, but tomorrow’s jobs report will be heavily impacted by technical factors, including the Boeing strike and job recoveries in hurricane-affected areas like Florida and North Carolina. This means tomorrow’s number will have little informational value unless it delivers a massive surprise.

Our growth nowcast has been spot-on in predicting both the rotation from services strength to manufacturing strength and the weakness in growth throughout November. However, predicting how markets will react tomorrow will be tough, if not impossible. Hedge funds appear to be jumping back into cyclicals, with Materials and Industrials climbing higher on our hedge fund positioning scoreboard. Yet, there’s little appetite for defensive equities like consumer staples, and markets continue to lean heavily into US equities over European and Asian peers.

Chart 1.a: Hedge fund positioning in equity sectors