USD Edges Higher before JOLTS Data

CURRENCY FUTURES

The USD index is higher in overnight trade, with June USD index contracts paring some losses and rising above the $99.00 level. Markets are currently awaiting JOLTS job openings data; a weak report will have a bearish influence on the dollar while a stronger reading should offer support to the greenback.

Euro futures are lower, pressured by a softer-than-expected inflation reading and a global growth downgrade from the Organization for Economic Co-operation and Development. Eurozone CPI inflation grew 1.9% in May on an annualized basis, below expectations of 2.0% and falling below the European Central Bank’s target of 2.0%. The European Central Bank is now set to cut its benchmark rate on Thursday to 2.0%, a move investors believe could be one of the final reductions in this cycle, unless a recession threatens the eurozone economy.

British pound futures are lower, pressured by a stronger dollar. The Nationwide housing price index rose 3.5% on an annualized basis Monday, greater than the 2.9% economists were expecting. Manufacturing PMI for the month of May was 46.4, greater than the expected 45.1 and an increase over last month’s 45.4. Wednesday will see services and composite PMI for the region. The Bank of England’s governor, Andrew Bailey, said Tuesday that the bank will continue to cut rates, but the extent to which and the timing remain in question.

Yen futures are lower, weighed down by a stronger dollar and comments from Bank of Japan Governor Kazuo Ueda that interest rate hikes will be on hold until further notice. An auction of 10-year Japanese government bonds was met with stronger-than-expected demand, pulling JGB and other foreign yields down.

The Australian dollar is lower, pressured by dollar strength. Meeting minutes from the Reserve Bank of Australia’s last meeting revealed that the monetary policy board was seriously debating a 50 bps rate cut in May due to growing uncertainty around the global growth outlook. In the end, the board chose to cut the official cash rate by a smaller 25 bps. The debate came as worries that events in the world economy will heavily weigh on Australia’s domestic economy. Further rate cuts from the bank will be expected, with underlying inflation easing and the board poised to respond to a slowdown in the Australian economy. Quarterly gross operating profits for private companies in the country shrank -0.5%, per new data released last night. Analysts were expecting a +1.2% rise in profits.

STOCK INDEX FUTURES

Stock index futures edged lower, awaiting the highly anticipated JOLTS job openings report for April, due at 9:00 a.m. CT. Last month showed 7.192 million job openings. The data will be a key indicator of the impact of US tariffs on the job market. The reading will give insight into how the post-tariff economy is holding up in the US, and labor market data will be key to assessing any potential moves from the Fed in the future.

US manufacturing PMI for the month of May was 52.0, down from expectations of 52.3, while ISM manufacturing PMI showed a contraction in manufacturing activity. The ISM (Institute for Supply Management) said Monday that its purchasing managers’ index of manufacturing activity fell to 48.5 in May, from 48.7 in April. Excluding the pandemic period, new export orders were at their lowest reading since 2009.

Construction spending decreased with a month-over-month reading for April of -0.4%. Economists were expecting an increase of +0.4%. March’s figure also saw construction spending fall with a -0.8% month-over-month drop.

ADP non-farm employment change figures, services PMI, ISM non-manufacturing PMI, and prices data for the month of May are due Wednesday morning. ADP nonfarm payroll employment change is expected to come in at 110,000, while services PMI is expected at 52.3. Thursday will see continuing jobless claims and initial jobless claims, as well as trade balance figures for April, which will likely show a sharp drop in imports. On Friday, nonfarm payroll figures, the unemployment rate, and average hourly earnings data for the month of May will finish the week.

The Organization for Economic Co-operation and Development on Tuesday said the global economy was on course to slow from 3.3% last year to 2.9% in 2025 and 2026, trimming March estimates for growth of 3.1% this year and 3.0% next year.

Despite the recent volatility, stock valuations are still relatively high by historical standards. Companies in the S&P 500 are trading at 22 times their expected earnings over the next 12 months, as of May 30, versus a 10-year average of 18.7 times. The high price-to-earnings ratio is at odds with the current macro environment, which has seen central banks and private companies across the globe cut their growth forecasts due to the still-unfolding consequences of uncertain trade policies.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve, supported by strong demand at a 10-year JGB auction that brought yields down across the globe. Markets are awaiting the JOLTS job openings report for insights into how the job market held up in April.

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. Most of the selling in the bond market recently has been at the long end of the curve, driven by concerns of long-term inflation resulting from President Trump’s tariffs and tax cuts.

The Treasury Department is expected to need to increase most of its longer-dated debt auction sizes later this year or next year 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.

The 10-year Treasury yield is just below 4.43%, and the 30-year yield is hovering around 4.95%. The spread between the two- and 10-year yields is 49 bps.

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