Politics, Trade, and Jobs Get their Turn in this Shortened Trading Week

• In a bid to restart trade negotiations with the US, Canada’s relented on the digital services tax levied against large US tech firms and that has markets in a risk-on mood to start the week, but Treasuries are playing along as well. Away from the trade news, the Senate will try to pass its version of the budget bill, and no doubt drama will be a part of those proceedings. Then you add in the host of tier-1 reports due in this compressed trading week and there will be no shortage of trading influences. Strap in for what could prove a short but action-filled week. Currently, the 10yr is yielding 4.23%, down 3bps on the day, while the 2yr is yielding 3.73%, down 1bp in early trading.

 

• While we have a bevy of new data to consume this week, there is always the political angle that is arguing for attention, and it is once again this week. Besides the aforementioned moves on the trade front, the Senate is slowly making its way towards a vote on The Big Beautiful Bill Act that President Trump wants on his deck to sign by July 4^th. With 7 Republican Senators still withholding approval, more horse trading appears on the horizon and assuming it eventually passes, and that’s a big assumption right now, the bill would face a conference committee to hammer out differences with the House version.

 

• Getting a single bill approved by both chamber to the White House by Friday seems a tall lift. And yes, while that July 4^th deadline is purely a man-made creation, debt levels continue to creep closer to the statutory debt limit, of which an extension is part of the bill. Treasury Secretary Bessent has mentioned mid-August as a best guess when the debt limit would be reached, so that remains the real drop-dead date when something has to happen.

 

• The first week of the month is upon us and that means the usual flurry of updated economic results, only this time they will be compressed into four days, with the July 4^th holiday on Friday. That means the usual Friday reports, including the jobs report, will be released on Thursday which will add to the push and pull of a week full of holiday anticipation but with a mountain of information to digest before getting to the good stuff.

 

• The BLS Nonfarm Payrolls Report will obviously be the big one and with continuing unemployment claims continuing to slowly increase, and consumers declaring that jobs are getting harder to find, the report will be pivotal in gaming odds of a Fed rate cut, and exactly how much time/patience the Fed may have to sit on their hands. Expectations are that new jobs total 116 thousand vs. 139 thousand in May with the unemployment rate ticking up to 4.3% vs. 4.2% the prior month. While labor momentum is clearly slowing, the expectation is for the labor market to still project a decent, if not spectacular, month. If that comes to pass the Fed will feel comfortable sitting out the summer with September remaining the strong favorite for the first rate cut this year.

 

• The compressed nature of the week is even more so when considering today offers little in tier-1 data but that changes tomorrow with the ISM Manufacturing Survey for June. Expectations are for an unchanged reading from May at 48.5, thus, still in slight contractionary territory. Attention will be paid to the employment, cost, and new orders metrics to get a better sense of how the elements within the sector are performing. While tariff cost passthrough into other areas of production has been limited to date, eyes are pealed for potential price upticks. Within US manufacturing, many imported good find ther way into intermediate steps of production, thus the focus on potential pricing pressure.

 

• Tomorrow brings the Job Openings and Labor Market Survey (JOLTS) for May. Recall job openings have been dropping since hitting a post-lockdown high of 12 million positions with the latest reading at 7.391 million. That puts the level of openings on a near 1 to 1 basis with the number of unemployed. That’s slightly under the pre-pandemic level and well off the nearly 2 to 1 level of jobs to unemployed at the post-lockdown peak. Employment momentum slowing, but the JOLTS update will provide another look at the pace of that slowing. The Quits Rate (2.0% voluntary quits to total employed) and the Layoff Rate (1.1% layoffs to total employed) will garner attention as well to see if the dynamic of low firings combined with low hirings continued into May. We have no reason to doubt they didn’t.

 

• In addition to the jobs report on Thursday we’ll get the usual jobless claims data along with the ISM Services Survey for June, so expect Thursday morning to be a busy one before thoughts turn fully to the long holiday weekend.

 

• Finally, Fed Speak will be with us today but with Chicago Fed President Austion Goolsbee and Atlanta Fed President Rafael Bostic providing the commentary. We’ve heard their views last week (content to wait for better inflation numbers), so we’re not sure we’ll hear anything different today.

 

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Futures for July Rate Cut – Clinging to an Outside Shot

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Pretty Obvious Where the Reduced Spending in May Came From 

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