Politics and Jobs Headline Holiday-Shortened Week

  • Treasury yields are higher this morning as investors await a ton of first-tier data in this holiday-shortened week and as they attempt to handicap the impact of the latest political events, both here and abroad (more on that below). Currently, the 10yr note is yielding 4.44%, up 4bp on the day, and the 2yr is yielding 4.77%, up 1bp on the day.


  • The political winds are blowing across both the US and Europe and that is having an impact on markets both here and abroad. France held snap elections yesterday and Marine LePen’s far-right party took the most votes but didn’t garner enough to secure a majority. A second round of voting will be held next Sunday. Far from being a French election expert, the consensus view right now seems to be that Macron should be able to secure a coalition that offsets the far-right to effectively create gridlock in Parliament. Markets tend to like gridlock in that it keeps the odds of large, sweeping programs or policy changes low. Further, in the two-stage election process, voters tend to use the first one as a protest vote, then return to a more measured response in the second and final round. That implies Macron should enjoy a better showing next Sunday but stayed tuned.


  • On this side of the pond, the dreadful debate performance by President Biden last Thursday has elicited calls for him to step aside for another candidate. The Biden administration is naturally fighting off these calls, but through it all it has upped the odds of a Trump victory in November and that is causing some pressure on longer-dated bonds given most of his policy pronouncements to date have inflation and deficit-generating potential. Consider too, whoever wins the presidency they will only be able to enact their more controversial policies if they sweep Congress as well. That trifecta will be hard to pull off, but the possibility remains, and that will keep some political uncertainty embedded in markets as we move through the summer and await more clarity.


  • Away from the political front, the first week of the month always brings a boatload of first-tier data, and with the July 4th holiday truncating the week it will come fast and furious. First up is the ISM Manufacturing Index for June due later this morning. Expectations are for the headline number to tick up from 48.7 to 49.1 with the prices paid metric expected dip from 57.0 to 55.8. New Orders are expected to increase from 45.4 to 49.0 and employment to tick lower from 51.1 to 50.0. A decline in prices paid and employment would play well with the improving inflation picture as well as the moderating labor market expectation.


  • Speaking of the labor market, tomorrow brings the JOLTS Job Opening figures for May. Expectations are for it to drop again from 8.059 million to 7.864 million. If that comes to pass it will be the lowest in three years and signal continued moderation in labor market demand. The Quits Rate will garner some attention as well. It has been stuck at 2.2% for five months which is just below the pre-pandemic average of 2.3%. That indicates slightly less confidence by workers in quitting and finding a better position. Again, another indication of a moderating labor market.


  • The ISM Services Index for June will be released on Wednesday with expectations for the service sector to tick lower from 53.8 to 52.5. And just like the Manufacturing index the prices paid, employment, and new orders will garner attention as well.


  • On Friday, the BLS Employment report will be released, and with the July 4th holiday we wonder how many will be around to see it and not enjoying a four-day weekend. In any event, for the poor souls who will be around expectations are for headline job gains to be 190k vs. 272k in May. The unemployment rate is expected to be unchanged at 4.0% with average hourly earnings dipping from 0.4% MoM to 0.3% and the YoY rate slowing to 3.9% from 4.1%. As has been the case for several months, attention will be paid to the disparities between the two surveys that make up the report which have tended to muddy the labor market picture that the report is supposed to illuminate. We’ll just have to see if that is the case again on Friday.

Average Hourly Earnings (YoY) – Expected to Dip Below 4%, but Fed Would Like it Closer to 3%

Source: Bloomberg



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Published: 07/01/24 Author: Thomas R. Fitzgerald