Indexes Eye Rebound in Fresh Earnings

STOCK INDEX FUTURES

Stock index futures are higher, rebounding from disappointing labor data and tariff headwinds last week, which saw the S&P 500 drop nearly 2.5%, the Nasdaq fall 2.2%, and the Dow shed 2.9%. July’s jobs report came in weaker than expected, and previous months’ figures were revised sharply lower, flipping the narrative on the labor market’s strength. This week will be relatively quiet on the economic front, with ISM survey data on services sector activity taking most of the attention. Other data due in the coming week are trade figures for June on Tuesday, followed by preliminary second-quarter productivity figures and weekly jobless claims on Thursday. 122 S&P 500 companies are set to report earnings, led by Palantir, Eli Lilly, and Disney. About two-thirds of the S&P 500 have reported earnings; the index is pacing for earnings growth of 10.3%, up from the 5% expected on June 27.

Employers added 73,000 jobs last month, below the 110,000 expected by economists, while May and June saw revisions that took out 258,000 jobs. Job growth in the past three months was the lowest since 2010, except during the peak months of the pandemic. The report also showed that hiring has been particularly weak in the sectors most sensitive to tariffs and the ups and downs of the economy. From April to July, payrolls fell in mining and logging, manufacturing, wholesale trade and retail trade, while hiring has slowed significantly in leisure and hospitality. This could potentially be reflecting a decline in foreign tourism and belt-tightening by US consumers and in state and local governments. Most job gains in recent months have come in noncyclical sectors like healthcare. However, layoffs have remained relatively sparse; with less immigrants entering the workforce, unemployment can remain stable with a slower pace of hiring than normal.

The question in the economy now that tariff levels are mostly set, and that tax cuts are on the horizon is how will economic growth and the labor market recover. Tariffs are likely to put increased pressure on prices, while reduced immigration and government job cuts have the dynamic to weigh on demand. Final sales to consumers and businesses, which carves out government spending, inventories, and international trade, grew just 1.2%, the weakest since late 2022, per data on Wednesday. Additionally, a challenge remains in October, when tens of thousands of federal employees who took voluntary buyouts will be off the government’s payrolls and potentially unemployed.

CURRENCY FUTURES

The USD index is lower, continuing its fall as the jobs data on Friday increased bets on the number of rate cuts by the Fed this year. Fed Chair Jerome Powell said on Wednesday that the Fed was looking to hold rates steady for longer but would also receive two sets of labor data before the next Fed meeting, which could alter that decision depending on strength. After Friday’s report and revisions, it is apparent that the labor market is cooling, adding to bets of rate cuts in September and October.

Euro futures are higher on dollar weakness. Inflation held at 2.0% in July, slightly above the 1.9% forecast, adding to bets that the European Central Bank will hold rates steady for the remainder of the year. Services purchasing managers indices for France, Germany, Italy, Spain, and the eurozone on Tuesday should give indications about consumer activity in light of the finalized 15% tariffs on European exports to the US. Other data will be mostly backward-looking, with June industrial production figures from Spain and France due Tuesday. Manufacturing orders in Germany and Italian industrial production, also for June, are due Wednesday, followed by German industrial production on Thursday.

British pound futures are higher on dollar weakness. The Bank of England will announce its policy decision on Thursday, where markets expect the bank to cut interest rates by 25 basis points to 4.00%. The BoE remains cautious as inflation is elevated, but elsewhere there are signs that the UK economy is struggling as the labor market cools. On the data front, the final estimate for the purchasing managers’ survey on services activity for July is due on Tuesday, and the latest RICS house price survey is on Friday.

Japanese yen futures are higher. The Bank of Japan is set to release the minutes of its June monetary policy meeting on Tuesday, and a summary of opinions from its July meeting on Friday. The Friday release may draw greater market attention, as it could include views on the recently reached US-Japan trade deal. On Wednesday, the central bank plans outright purchases across four sectors of the Japanese government bond market. These operations should provide some support to the local bond market that day. Markets will closely watch the outcome of the 30-year JGB auction amid lingering concerns over potential additional bond issuance to finance economic stimulus measures by a new government, following the ruling coalition’s loss of its Upper House majority in last month’s elections.

Australian dollar futures are higher as market sentiment remained upbeat following Australia’s exemption from the latest round of US tariff hikes, maintaining the 10% baseline rate. The White House attributed this to progress in ongoing trade and security negotiations, noting that Australia is among a group of countries nearing comprehensive agreements. June household spending data will be closely watched for signs that consumers increased purchases during midyear sales. A strong reading could temper expectations for an interest-rate cut at the Reserve Bank of Australia’s Aug. 12 meeting, although money markets are pricing in a 100% chance of a rate cut.

INTEREST RATE MARKET FUTURES

Futures are mixed across the curve, with long-end yields marginally higher. Yields fell sharply following Friday’s jobs report, which painted a dimmer picture of the labor market than what markets were expecting, adding to bets that the Fed will cut rates at its September meeting and may even opt for a faster pace of easing as well. Data on Friday showed that US employment growth was weaker than expected in July, while the nonfarm payrolls count for the previous two months was revised down by 258,000 jobs, stoking investor concern about the integrity of economic data and the Fed’s ability to read the state of the economy. President Trump fired a top Labor Department official on Friday, while the departure of Fed Governor Adriana Kugler offered Trump the chance to reshape the Fed.

On the supply side, the Treasury will auction $58 billion in three-year notes on Tuesday, $42 billion in 10-year notes on Wednesday, and $25 billion in 30-year bonds on Thursday. The spread between the two- and 10-year yields is 53 basis points.

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