Markets Eye April JOLTS Data

MACRO FRAME

Global equity markets appear to be treating US-Iran talks to reopen the Strait of Hormuz as a done deal, leaving Friday’s labor report as the key risk event in its potential Fed policy implications.

STOCK INDEX FUTURES

Equity index futures moved lower overnight as investors took profits following yesterday’s rally, which saw all three major indexes close at record highs. Optimism continues to be fueled by strong corporate fundamentals and tech-fueled optimism, mainly thanks to the AI trade. On that front, overnight Google parent Alphabet said it would issue $80 billion in equity to fund further AI infrastructure buildout, a sign that the spending has yet to slow down. This comes after Nvidia announced its new RTX Spark Superchip, which added fresh momentum to the sector and is set  to rival AMD and Intel. While oil prices have come off their recent highs, they still remain elevated by historical standards, though oil’s influence on equity markets has diminished considerably, replaced by the dominant market of AI. This week’s big event is May’s nonfarm payrolls report; another strong report like April’s would reinforce the view that rate cuts are unlikely in the near term, especially if it shows robust wage gains. Conversely, a downside surprise could stoke recession fears while prompting markets to reassess the outlook for policy easing. Yesterday’s ISM manufacturing PMI data showed the strongest expansion of factory activity since 2022, with new orders, production, order backlogs all rising substantially, while customer inventories remained low, positive signs of demand and future production. Meanwhile, employment contracted less than before, while price pressures remained elevated. Markets will be on the lookout for today’s JOLTS data, which is expected to 6.86 million job openings in April, though attention will largely be focused on the hiring and separations rate for signs of layoff activity.

Watch point: Details regarding tanker traffic through the Strait will be a catalyst for global markets and may significantly reprice expectations over Fed policy, though negotiations are likely to need further time.

FOREIGN EXCHANGE

US DOLLAR: The USD index slipped 0.11% to 99.08, maintaining a tight range ahead of today’s JOLTS data and as markets await further news regarding US-Iran peace talks. President Trump said on Monday that talks with Iran were ongoing, which prompted a drop in oil prices, after Tehran had suspended indirect negotiations with the US over the conflict in Lebanon. The apparent ceasefire in Lebanon has offered some relief to oil prices and currency traders, though the moves overnight suggest a wave of caution among market participants. With expectations that the Fed’s next move will be a hike, signs of stability in the labor market will offer the dollar support, while any indications of an increase in layoff activity is likely to have modest pressure on the greenback. For the dollar, this week’s data could serve as a turning point for what the Fed will do next, though we expect a continuation of the status quo with the Fed, as recent labor market data has been supportive of a hold on policy.

The downside risk for the dollar remains a comprehensive peace deal and restoration of oil flows through the Strait, which could unwind flight-to-quality longs and see the dollar drop substantially. Underlying fundamentals remain mildly supportive of the dollar given the inflationary backdrop and recent statements from FOMC members, though the dollar could slip on hawkish signals from the European Central Bank, which is expected to raise rates this month. Money markets have placed odds of a December rate hike at 47%.

Watch point: Currency markets are in wait-and-see mode ahead of Friday’s labor report and any further developments between the US and Iran.

EURO: The euro is 0.16% higher at $1.1651. Inflation data overnight reinforced the case for policy tightening at the European Central Bank’s June meeting later this month, with headline inflation rising to 3.2% YoY, while core inflation rose to 2.5% YoY. Energy rose +10.9% YoY in May, up sharply from +5.1% in April, reflecting Monday’s PMI findings of supply chain disruptions feeding into consumer energy bills. Positively, for the ECB services inflation eased slightly to 3.0% from 3.2% in April, the only major component to move in the right direction. Services represent nearly 47% of the basket, which should offer some relief for the ECB’s domestic inflation narrative, as services are typically wage-driven rather than commodity-driven. With yesterday’s PMI data pointing to a modest decline in activity, the ECB maintains the scope to tighten policy without worrying about impacts to economic growth. Money markets maintain 96% chance of a hike at the June meeting and see 60 bps of tightening by year-end. For the euro, broader risk sentiment will continue to determine price direction, while the interest rate differential against the dollar remains unfavorable given the recent shift in Fed expectations.

Watch point: While a June rate hike remains the favorable move from the ECB, a peace deal and restoration of oil flows through the strait is likely to reduce tightening expectations.

BRITISH POUND: Sterling moved 0.16% higher to $1.3472, maintaining its recent range as investors remained cautious over the potential US-Iran deal. Notably, the sterling has maintained modest strength despite a dovish repricing of Bank of England expectations, which is largely attributable to the reduction in geopolitical risk and decline in demand for the dollar as a result of US-Iran peace talks. While a peace deal would see the pound strengthen on the back of risk-on flows, that would also open the door for a resumption of policy-easing from the BoE and lend focus back to the economic challenges for the country. Political risks still pose as a potential downside risk for the pound despite having eased in recent weeks. Mid-June’s Makerfield by-election remains a potential catalyst that could renew discussions over fiscal policy and see Starmer’s leadership challenged.

Bank of England Governor Andrew Bailey has suggested that the Bank of England has no immediate desire to move on policy, as Bailey said that allowing inflation to run above the BoE’s 2% target was justified given uncertainty over the economic impact of the Iran war and the weak pace of growth.

JAPANESE YEN: The yen is little changed at 159.79 yen per dollar. Finance Minister Satsuki Katayama said on Tuesday that authorities stood ready to respond in the currency market as the yen neared the 160 level, which has previously brought intervention from government authorities. Bank of Japan Governor Ueda will give a speech on Wednesday, which could offer hints on the timing of the central bank’s next move, which money markets expect to be a rate hike at the June meeting. Data on Friday showed annual core inflation in Tokyo stayed below the central bank’s 2% target for a fourth straight month in May. Still, it is unlikely that the Tokyo inflation reading will deter BoJ policymakers from wanting to raise rates at their June meeting. Odds of a hike at the June meeting are priced at 70%, while the market sees a total of 42 bps of tightening by year-end. Intervention risk continues to offer the currency support near the 160 level.

AUSTRALIAN DOLLAR: The Aussie is 0.34% higher to $0.7179 despite a mix of negative data, which showed that trade declined as bad weather effected commodity exports, while data center equipment and energy imports rose. Net exports took 0.8% off GDP, above forecasts of 0.5%. Other figures showed government spending no impact to growth, while inventories added 0.2%. Analysts are expecting the economy to grow by 0.5% in Q1 at 2.6% YoY. Australia will release Q1 GDP data on tomorrow. A 4.75% rise in the minimum wage for 2026/27 was also announced, slightly above analyst expectations, a factor which could add further pressure to inflationary pressures in the economy. The Reserve Bank of Australia has broadly signaled that it is in a wait-and-see mode following three rate hikes earlier this year. CPI data last week missed expectations, with prices in April rising 0.4% MoM, below forecasts for 0.6%. Annual  inflation slowed to 4.2% from 4.6%, though that was in part because of government tax break on petrol. However, the key trimmed mean measure of core inflation rose 0.3% as expected, taking the annual pace up to 3.4%, which is likely to keep the Reserve Bank of Australia on its tightening bias. Markets have slashed tightening expectations, implying a 8% chance of a June hike to the 4.35% cash rate, while a December hike is priced at 66%. RBA Governor Michele Bullock will speak before lawmakers on Thursday and Deputy Governor Andrew Hauser will speak on Friday.

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 keep the RBA on a tightening path.

TREASURY FUTURES

Yields moved lower across the curve, maintaining a tight overnight range ahead of today’s JOLTS data for April, which is expected to show a slight decline in job openings from March. The most Fed-relevant metric is the openings to unemployed ratio, which currently stands at 0.97 (6.87M openings vs. 7.1 million unemployed), nearly at parity with pre-pandemic norms. If openings tick up meaningfully above 7M, it signals labor demand is reaccelerating, which is bearish. A drop toward 6.5M is a bull scenario and could give the Fed room to ease despite the energy-driven CPI surge. Layoffs held at 1.2% in March. The Fed and bond market are watching for a break above ~1.4–1.5%, which could signal a genuine decline in demand rather than just a soft patch.

With recent data, including weekly claims and previous hiring figures suggesting a stable labor market, today’s and Friday’s data will need to see a serious drop in hiring to get the market excited about rate cuts this year. The Chicago Fed’s Real-Time Unemployment Rate Forecast for May is 4.32%, edging down from the prior BLS reading of 4.34%. The modest improvement is largely attributable to a slight decline in separations, as reflected in the Chicago Fed’s Layoffs and Other Separations Rate. Treasury markets continue to take directional cues from oil prices, as a sustained move higher in crude would carry the greatest risk of re-anchoring embedded inflation expectations at elevated levels. The 10-year yield has tracked the trajectory of December Brent crude closely over recent months, though there are emerging signs that this correlation is beginning to soften.

Watch point: The path to loosening has appears nonexistent as inflation has evidently become more broad based. We no longer expect the Fed to lower rates in 2026 as building inflationary pressures are evident in stickier readings.

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