Yields Higher Following ADP Job Figures

INTEREST RATE MARKET FUTURES

Futures are lower across the curve, following Wednesday’s ADP jobs report. Treasurys were also lower across the curve Tuesday, pressured by an upbeat JOLTS report and ISM manufacturing data. JOLTS job openings saw the number of job openings little changed at 7.8 million, higher than estimates of a 7.32 million increase and reaching their highest level since November 2024. Accommodation and food services (+314,000) led the charge in openings, followed by finance and insurance (+91,000), while the number of openings decreased in the federal government (-39,000). The number and rate of layoffs were little changed at 1.6 million and 1.0%, respectively, showing a resilient labor market that indicated companies are going ahead with hiring despite the broader economic uncertainty.

ISM manufacturing PMI rose more than expected, although remaining in contraction territory, showing that manufacturing activity contracted at a slower rate than expected. June’s ISM manufacturing PMI was 49.0, beating out expectations of 48.8 and higher than May’s reading of 48.5. ISM manufacturing did slip, with the index falling to 45.0, down from 46.8 in May, showing that hiring contracted further.

Yields were little changed in reaction to the passing of President Trump’s tax-cut and spending bill, which is heading to the House after a 51-50 vote passed in the Senate, as most of its impact was already priced in by bond markets. The Treasury Department will likely 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 121% of gross domestic product and projected to rise to 134% over the next decade. Investors remain worried that an increase in bond issuance will outpace demand, as foreign central banks trim their holdings of US Treasurys. 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.

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. Focus now shifts to Thursday’s labor market report.

The 10-year Treasury yield is 4.28%, and the 30-year yield is 4.83%. The spread between the two- and 10-year yields rose to 51 bps from 49 bps Tuesday.

STOCK INDEX FUTURES

Stock index futures are mixed following the ADP nonfarm payroll report, which showed a 33,000 decline in payroll figures, a stark contrast to the expected growth of 99,000. Focus now shifts to Thursday’s official jobs report, as markets watch for any signs of cooling in the labor market that could prompt the Fed to cut rates earlier than expected.

The indexes were mixed Tuesday following a better-than-expected JOLTS job openings report, which saw an uptick in openings, and ISM manufacturing data that showed manufacturing activity contracted at a slower rate than expected in the US. The Senate passed President Trump’s tax-cut and spending bill, sending it to the House for a final vote expected Wednesday. The S&P wavered while the Dow popped as the Nasdaq fell, as Tesla led the decline in the tech sector as the feud between Elon Musk and Trump flared up again over the bill. 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.

CURRENCY FUTURES

The USD index is higher, despite a bearish influence from the ADP nonfarm jobs report. The dollar recovered early losses on Tuesday against other major currencies following a better-than-expected JOLTS job openings report and ISM manufacturing activity that showed activity contracted at a slower rate than expected. The dollar also continued its gains despite the passing of President Trump’s tax-cut and spending bill through the Senate, indicating that markets had already priced in its passing. 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 lower after unemployment figures showed an uptick in the eurozone in May. Unemployment rose to 6.3%, up from 6.2% in April. Despite the uptick, the jobless rate remains near historically low levels, with the rise in unemployment being driven by Italy, where the rate rose to 6.5%, up from 6.1% in April. Uncertainty surrounding the economic outlook for the region suggests that more volatility in the labor market is on the horizon. Euro futures finished flat Tuesday, pressured by a rising dollar and comments from European Central Bank officials about the hit from a further appreciation of the euro on the eurozone economy. A stronger euro is somewhat of a double-edged sword for the eurozone, as it makes European exports more expensive and imports cheaper, pressuring both growth and inflation. The combination of a 10% tariff and the exchange rate would be substantial enough to affect export dynamics; EU officials have appeared to resign themselves to a 10% tariff on exports to the US while they continue trade discussions with the US. President Trump has set a July 9 deadline for trade talks between the EU and the US to agree on a deal.

British pound futures fell as the sterling held steady in the spot market. 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 lower as the yen pulled back from three-week highs overnight as President Trump threatened to impose a 35% tariff on Japanese goods in an effort to pressure Japan into a trade deal. 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, who signaled an increase in sentiment despite tariff uncertainty. President Trump also 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 lower following a release of several economic figures. Retail sales for the month of May grew 0.2%, below expectations of 0.3% and above last month’s figure of 0.0% growth. Building approvals for May grew 3.2% month-over-month, which was below expectations of 4.2% but a sharp rebound over April’s -4.1% contraction in approvals. Household spending figures are due Friday, which will complete the week in major economic data for the country before its central bank is set to meet next week. Markets are fully pricing in a rate cut by the RBA, as recent inflation data has shown that price pressures have diminished more quickly than expected.

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