Labor Report Dulls July Rate Cut Bets

INTEREST RATE MARKET FUTURES

Futures are lower across the curve following the better-than-expected jobs report for June, which dulled any hopes for a July rate cut from the Fed. Nonfarm payrolls grew by 147,000, sharply beating expectations of 110,000 and higher than May’s revised figure that rose to 144,000 from 139,000. The unemployment rate fell to 4.1% from 4.2%, while weekly initial jobless claims came in lower than expected at 233,000 vs. 240,000.

Average hourly earnings in the US grew slower than expected, with a 0.2% growth, lower than expectations of 0.3%. Despite the slower than expected growth, wage growth still remains above inflation levels. The participation rate held steady around 62.3%, just below the previous figure of 62.4%, attributable to the drop in the unemployment rate. With a solid jobs report, the Fed will likely not cut rates at its July meeting, further reinforcing its wait-and-see approach to monetary policy while they await further clarity on the impact of tariffs on prices.

The US economy has added an average of 124,000 jobs a month this year, down from last year’s 168,000, reflecting how tariffs, government layoffs, and an immigration crackdown could be impacting the job market. Notably, slow population growth and an aging workforce make it harder for the US economy to add jobs like it has in the past. Layoff activity has remained relatively low, per recent data from the JOLTS jobs openings report, although economic uncertainty has dampened the pace of hiring. However, from January through April, the Labor Department has revised down the number of monthly employment gains by an average of 55,000 jobs per month.

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.

Futures are showing a 95% chance that the Fed will not cut rates at its July meeting and a 77.6% chance of a rate cut by the September meeting.

The 10-year Treasury yield is 4.34%, and the 30-year yield is 4.85%. The spread between the two- and 10-year yields fell to 45 bps from 51 bps Wednesday.

STOCK INDEX FUTURES

Stock index futures are higher after an upbeat jobs report. Nonfarm payrolls in June came in at 147,000, beating out expectations of 110,000 and a slight rise over May’s revised figure of 144,000, while the unemployment rate fell to 4.1%. The report is welcome news for investors who have grown worried over the economic impact of President Trump’s tariffs on the job market.

Trade balance figures for May were little changed from April, at -71.50 billion compared at April’s -60.30 billion with the increase in the trade deficit owed to a decrease in exports. Export figures were 279.00 billion compared to the previous figure of 289.40 billion.

President Trump on Wednesday announced that he had reached a trade deal with Vietnam, which would lower the tariff on Vietnamese goods imported to the US from 46% to 20%, while US goods entering Vietnam would not face any levies. Additionally, any Vietnamese goods would face a higher 40% tariff on any “transshipping,” where goods shipped from Vietnam originate from another country, like China.

ISM non-manufacturing PMI data for June is due later this morning at 9:00 a.m. CT, with a reading of 50.8 expected.

CURRENCY FUTURES

The USD index is higher following the strong jobs report that dulls any chances of a Fed rate cut in July, offering support for the dollar. Average hourly earnings increased by 0.2%, slightly below the projected 0.3%.

Euro futures are lower on dollar strength. 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. 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 are lower as the dollar gained strength following the strong jobs report. British government bonds and the pound fell sharply on Wednesday after the government scaled back plans to cut welfare benefits. This reignited worries about fiscal stability in the country, as the reversal on welfare plans meant Britain may not be able to abide by its own fiscal rules and could lead to an increase in government debt and bond issuance. S&P composite and services PMI for Britain showed that private sector activity picked up in the region, with readings of 52.0 and 52.8, respectively, both beating out economist expectations. 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 on dollar strength following the June jobs report in the US. A 30-year Japanese government bond auction drew solid demand, fetching a yield of 2.808%, giving policymakers in the country some relief that their objective to quell debt-market volatility is working. Despite the solid auction, yields on longer-term debt rose globally as concerns over fiscal spending continue to rattle investors.

Australian dollar futures fell lower, weighed down by the dollar and trade balance figures, which showed a sharp contraction in exports and an increase in imports, with the trade balance falling by half from 4.859 billion to 2.238 billion. Exports shrank month-over-month at a rate of -2.7%, while imports grew at 3.8%. These figures represent Australia’s smallest trade surplus in nearly five years. 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. Weakness in the greenback has limited losses for the Australian dollar recently.

Interested in more futures markets?  Explore our Market Dashboards here.