Written Commentary
STOCK INDEX FUTURES
Stock index futures fell lower as markets await the JOLTS job openings report due at 9:00 a.m. CT today, which is expected to show 7.320 million job openings. The S&P reached as record high yesterday, closing above 6,200 for the first time ever. Investor sentiment was also lifted after Canada rolled back its proposed digital services tax in a move aimed at easing trade tensions with the US.
It has been reported that President Trump’s team is aiming to strike smaller, quicker trade agreements before the July 9 deadline, while at-large discussions continue. These mini deals would help to avoid those harsh levies, but countries would still face existing tariffs while talks continue. Talks continue to take place, and Trump is still threatening new tariffs on key sectors like cars, steel, and aluminum.
Thursday’s jobs report is the main focus for the week, as markets watch for any signs of cooling in the labor market that could prompt the Fed to cut rates earlier than expected.
CURRENCY FUTURES
The USD index fell to its lowest level since February 2022, at $96.7, as mounting concerns over the US fiscal outlook and expectations that the Fed will lower rates sooner rather than later weigh on the dollar. Markets are closely monitoring the tax-cut and spending bill making its way through Congress, which is expected to add $3.3 trillion to the US debt over. The dollar dropped to a nearly four-year low against the euro and a three-and-a-half-year low against the British pound. Attention now turns to Thursday’s monthly jobs report for new signals on the strength of the US labor market, in which a poor reading could boost the chances of a Fed cut in July.
Euro futures are higher as inflation in the eurozone crept higher per provisional inflation data. CPI inflation rose 2.0% on an annualized basis in June, following expectations and slightly above the 1.9% recorded in May, hitting the European Central Bank’s target and raising expectations that the bank will leave rates unchanged at its meeting later this month. Rising energy and goods prices helped account for the uptick as core inflation remained unchanged at 2.3%. Higher tariffs from the US are also likely to lower inflation, given their effect of damping demand for European goods and that cheaper Asian products could be redirected to Europe. Markets still anticipate one more rate cut by the end of the year, although they expect the bank to hold rates steady this month.
British pound futures are higher on dollar weakness, with the sterling reaching its highest level against the dollar in four years as the US-UK trade deal took effect on Monday. UK Q1 GDP growth was confirmed at 0.7%, matching earlier estimates. The pound continues to benefit from the Bank of England’s hesitance to cut interest rates compared to peers like the ECB, as UK inflation remains sticky. Core inflation has shown little movement over the past year, causing concern among BoE officials and complicating rate cut decisions. UK money markets are pricing in a 66% chance of a rate cut in August.
Japanese yen futures are higher, as results from the Bank of Japan’s quarterly tankan corporate survey, which monitors sentiment and investment plans among businesses, were better than expected among large manufacturers. The US and Japan still have yet to reach a trade agreement as the July 9 deadline approaches. President Trump confirmed that the 25% tariff on auto imports will remain due to the persistent trade imbalance. Markets will continue to monitor the negotiations between the two countries.
Australian dollar futures are hovering around flatline as investors await consumer spending data due later in the week, which comes ahead of the Reserve Bank of Australia’s policy meeting that starts next week. Retail sales data is due on Wednesday, and household spending figures are due Friday; the data would need to show a considerable uptick in spending to derail what markets are expecting of a third rate interest rate cut in July. Recent inflation data has shown that price pressures have diminished more quickly than expected, opening a path for the RBA to cut again, indicating that more cuts are likely before the end of the year. RBA Gov. Michele Bullock may also take the opportunity to review the bank’s overarching narrative, moving it away from the fight against inflation to a more pro-growth outlook.
INTEREST RATE MARKET FUTURES
Futures are higher across the curve as investors await the JOLTS job openings data for May due at 9:00 a.m. CT, which is expected to show 7.320 million job openings. Markets also await Thursday’s nonfarm payroll figures for evidence of a weak job market, which could add to speculation the Fed could cut interest rates sooner rather than later. The Fed will likely need to see a clear deterioration in the labor market to trigger an early move. ISM manufacturing PMI figures are also due at 9:00 a.m. CT today and are expected to show a slight recovery in manufacturing activity.
President Trump’s tax-cut and spending bill continues to make its way through Congress, which is expected to add $3.3 trillion to the US debt. The increase in spending has added to expectations that the Treasury Department will need to increase most of its longer-dated debt auction sizes later this year or next year to continue to finance the government’s growing debt problem. US public debt is around 100% of gross domestic product and projected to rise to 134% over the next decade. Investors are worried that an increase in bond issuance will outpace demand, as recent Treasury auctions have been met with tepid demand, although foreign demand remains stable. Recent trade policies, combined with the fiscal picture of the US debt, have caused worries in bond markets across the globe, causing investors to demand higher yields on bonds.
The 10-year yield fell to a two-month low of 4.191% earlier this morning, with the drop in yields pressured by expectations of an accelerated pace of interest rate cuts from the Fed. Futures are showing a 20% chance that the Fed will cut rates at its July meeting and a 99% chance of a rate cut by the September meeting.
The 10-year Treasury yield is 4.20%, and the 30-year yield is 4.74%. The spread between the two- and 10-year yields is 49 bps.
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