Markets Prep for Hiring Data

MACRO FRAME

JOLTS data for May reinforces the market narrative around Fed policy ahead of tomorrow’s payrolls data.

STOCK INDEX FUTURES

Equity index futures are softer to start the third quarter, with markets eyeing Warsh’s Sintra remarks and US-Iran headlines against a relatively stable rates backdrop. Warsh speaks at the ECB’s Sintra forum at 8 a.m. CT, and his comments will be closely watched for rate-path signals, though it would be surprising if he revealed much forward guidance given his new objective is to reduce such. However, with consumer confidence surprising to the upside and equities near the upper end of their recent ranges, there would be little reason for Warsh to soften his hawkish tone. On Iran, Trump has considered a return to full‑scale fighting but, for now, is opting to continue diplomacy, and is reportedly comfortable if negotiations extend beyond the August 18 nuclear‑deal deadline. Oil is trading near $70bbl, roughly back to pre‑conflict levels, suggesting the market is leaning toward continued flows rather than renewed disruption.

ISM manufacturing data out later in the morning is expected to show some signs of stabilization but with activity in the sector still expanding, with a reading of 54.0. Production has largely been growing in the sector, demand has remained stable, input prices are rising, putting strain on businesses. While the recent US-Iran agreement is likely to lift sentiment and reduce input costs, price growth will not subside until a full reopening of the Strait and deal are reached.

Yesterday’s JOLTS data came in above forecasts, with openings (7.6m) largely holding flat from April’s reading, while total hires slipped, reinforcing the theme that employer willingness to add headcount has moderated somewhat, although that comes against the backdrop of a recent surge in hiring. Regardless, the data does not reveal signs of any distinct deterioration in the labor market ahead of tomorrow’s payrolls data. Forecasts are expecting a reading of +114k, and the unemployment rate to maintain at 4.3%. An upside reading is likely to pressure stocks, particularly tech, which has been sensitive to the rate environment due to its recent splurging on debt to raise cash.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure.

CURRENCIES

US DOLLAR: The USD index is 0.24% higher to 101.42. Dollar strength is being reinforced by recent moves in Treasury yields, with the 10-Year yield up 12bps this week to just under 4.50% Underlying support for the dollar comes from market expectations of a rate hike from the Fed by year-end. While this dynamic has been priced in recent weeks, fresh support comes amidst optimism over the US economy, furthering demand for dollars. Tomorrow’s payroll data is likely to shape Fed expectations and the dollar could see a significant bounce upwards if hiring continues to surge.

Currently, markets are fully priced for one rate hike this year, seeing around 38 bps of total tightening by year-end, roughly the same pricing from last Friday. The dollar is has been driven more by rates and macro factors than geopolitical developments over the last couple of sessions, lower oil prices and direct US-Iran talks would otherwise see a flight away from dollar safety.

Watch point: Thursday’s inflation data and May’s JOLTS have reinforced expectations that Fed policy will move higher before year-end. An upside surprise in tomorrow’s data is likely to cement those expectations.

EURO: The euro is 0.43% lower at $1.1374. Eurozone inflation came in lower than expected at 2.8% YoY, down from 3.2% in June’s reading and below expectations of 3.0%. Energy inflation eased, helping bring down the headline figure, while core inflation fell from 2.6% to 2.4% YoY in June. This follows softer-than-expected readings from France, Italy, and Germany, though policymakers at the European Central Bank’s conference warned that the oil price shock is expected to continue to affect the economy, and that they remained concerned about inflation. Incoming data could change the outlook in either direction: on the hawkish side, elevated volatility, second-round inflation effects, and geopolitical uncertainty point to upside risks in inflation. On the dovish side, if the current energy environment persists, the bank could afford to wait until September, when if offers fresh projections on the economy to decide on the appropriate path for policy. However, given the current environment and previous policy response from the bank, a hawkish bias is likely to persist until policymakers gain a better understanding of the second-round effects of inflation, which may not come until later in the year. Traders are fully priced for a hike in December, though remain favorable to a move upwards at the October meeting. The market is seeing a total of 26 bps of tightening by year-end.

Watch point: A peace deal, restoration of oil flows through the Strait, and easing services inflation are likely to push back tightening expectations, though policy expectations are still biased upwards.

BRITISH POUND: Sterling is 0.20% lower at $1.3241. The Sterling has broken a four-day run of gains against the dollar, more or less reflecting broad dollar strength and higher US yields ahead of upcoming labor data. The BoE is seen as stuck in the middle, money markets now price about a 80% chance of one hike by year‑end. Q1 UK GDP was confirmed at 0.6% QoQ, unchanged from the earlier estimate and a non-event for markets. Focus is instead centered around Andy Burnham. His latest speech pitched a 10‑year mission for “good” growth, centered on devolution and cooperation, which markets view as politically “radical” but not immediately threatening for fiscal credibility. Initial concern around Burnham’s potential for higher borrowing/spending has faded somewhat; the reaction to his remarks has been muted but marginally positive for sterling. Devolution as a theme does not inherently alarm markets, though it could prove costly over time; for now, he has not said anything that materially worsens the fiscal story, and some sterling shorts have been squeezed out.

JAPANESE YEN: The yen has fallen to its weakest level in 40 years at 162.76 yen per dollar. Japanese officials are signaling they are “close” to potential action, with the Ministry of Finance seen as needing to act to preserve credibility; Friday’s U.S. holiday is highlighted as a possible window for intervention given thin liquidity. The yen is also facing political pressure on the Bank of Japan from the Taikichi administration, who is urging the bank to slow its interest rate hikes. At the same time, the administration appointed Ayano Sato, a known dove, to the central bank’s board on Tuesday. Attention will be focused on Sato’s views regarding further interest rate hikes and expansionary fiscal policy for signals on the trajectory of the interest rate path. Meanwhile, concerns over inflation stemming from a weak yen are likely to grow, in part because of the BOJ’s delay in raising rates further. The market sees a total of 19 bps of tightening by year-end, with a move expected to come in January of 2027.

Japanese Finance Minister Satsuki Katayama reiterated that authorities were ready to respond appropriately at any time, but refrained from stronger rhetoric. Japanese authorities have already spent roughly ¥11.7 trillion (about $72 billion) intervening in April–May, but those efforts only briefly slowed the trend; officials continue to say they are “ready to respond,” raising expectations of further intervention even if timing is uncertain. However, the failure to reverse the downward trend has likely offered officials some reluctance in determining when to intervene next.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie is 0.4% lower at $0.6895. Aussie bonds are also under pressure after a spike in US yields overnight as markets increase the odds on a rate hikes from the Fed ahead of jobs data on Thursday. Currently, yield differentials are moving in favor of the dollar. The data calendar is thin this week for the Aussie, leaving attention on the heavy raft of US data. Minutes of the Reserve Bank of Australia’s June policy meeting showed the board still saw upside risks for inflation and stood ready to raise rates again if needed, having already hiked three times this year. However, members at the RBA were increasingly concerned about the risk of a downturn in the housing market, highlighting the board’s focus on the balance of risks. The recent drop in oil has led investors to pare back bets of another rate hike to just 40%, and to flirt with the idea of cuts as early as mid-2027. Recent pressure against the Aussie has come from stronger Fed rate hike pricing, which has led to a compression in interest rate differentials. Still, progress in US-Iran talks are largely supportive of the risk-sensitive currency.

Watch point: While a durable end to the war would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to be in focus in the RBA’s policy minutes.

TREASURY FUTURES

Yields moved higher across the curve ahead of tomorrow’s data. Data from ADP showed that the private sector added nearly 100,000 jobs in June, just under expectations but nonetheless reinforcing sentiment that the Fed can focus more on inflation and less on the labor market. Meanwhile, May’s JOLTS data saw yields move higher as the data reinforced the view that the labor market remains solid, giving the Fed more room to navigate on inflation. This sets the backdrop for tomorrow’s nonfarm payrolls data, which is likely to shape the timing of Fed rate hike expectations materially. A strong reading is likely to see yields bounce higher, while also pushing expectations of a rate hike from the Fed closer. A weaker-than-consensus reading is likely to offer some support for bond prices, though not have an outsized impact on prices unless it is a disastrous result. Markets are priced for a move higher in October, though a strong reading tomorrow could see those odds move in favor of a move higher in September.

Warsh characterized the inflation overshoot as supply-driven rather than demand-driven, leaving room for yields to eventually ease if oil prices continue to hold a substantial drop. Warsh will be speaking at an ECB forum on Wednesday, where his remarks are likely to be scrutinized for details over the policy outlook. However, markets should not expect any signaling from Warsh, given that his new mandate is to not signal policy. We slightly favor a Fed rate hike in Q3, over a hold. However though the outlook remains more dependent upon inflation data rather than labor data in our view. Otherwise, we expect the Fed to hold on rates.

Watch point: The Warsh-led Fed held on rates and signaled broad institutional change. Mainly, markets should expect fewer words from the Fed and less policy signaling, raising near-term rate volatility with incoming data.

 

 

Interested in more futures markets?  Explore our Market Dashboards here.