US stock index futures added to yesterday’s gains in early trade. Volatility remains contained, with the front-month July VIX contract trading comfortably south of 20.00. Despite lingering geopolitical concerns and tariff uncertainties, market participants seem remarkably unruffled, and appear happy to increase their exposure to US equities.
Now they await today’s US Non-Farm Payrolls update. This is expected to offer crucial insight into labour market health and, by extension, the Federal Reserve’s next steps. The CME’s FedWatch Tool continues to indicate that the Federal Reserve will leave rates unchanged at its next monetary policy meeting at the end of next month.
Instead, the Fed is expected to announce a 25 basis point rate cut at its September meeting, with an increased probability of an additional 50 basis points-worth of cuts by year-end. This won’t be enough to soothe President Trump who continues to be highly critical of Fed Chair Jerome Powell.
This criticism, along with Mr Trump’s threat to name Mr Powell’s successor after the summer, rather than waiting to nearer the Chair’s departure date in May, is weighing on the US dollar. Investors are also concerned by the outlook for US national debt, particularly as President Trump’s controversial ‘Big, Beautiful Bill’ could add as much as $3.3 trillion to it over the next decade.
The bill was approved by the Senate, and is now back with the House for a final vote. Overall, next week’s tariff deadline has failed to dampen investor risk appetite. The Vietnam deal and chip software relief for China are reminders that deals can still be completed over the next few days. Geopolitical tensions have faded.
Markets are tightly coiled around the upcoming US employment report, with investors wondering if today’s Non-Farm Payrolls release could provide a catalyst for the next big move. This view has been strengthened following yesterday’s unexpectedly weak ADP data. This has raised the temperature ahead of today’s payroll release.
Source: TN Trader
The consensus expectation is that payrolls will rise by 110,000 jobs in June. If this comes in significantly weaker, then that would push up the probabilities of a July cut from the Fed. But, despite all the pressure from President Trump for the central bank to ease monetary policy significantly, the Fed is unlikely to shift its current position on the basis of a single data release.
