Goldilocks Jobs Report Sees Sentiment Firm Into Long Weekend

WHERE WE STAND – Another month, another goldilocks US jobs report.

Headline nonfarm payrolls rose +147k in June, well above expectations, and towards the top of the forecast range, while average hourly earnings grew just 0.2% MoM, and unemployment unexpectedly dipped to 4.1%. Not too hot, and not too cold. In fact, pretty much a perfect jobs report, which speaks to continued underlying resilience within the US economy.

The only blot on an otherwise perfect copybook was a decline in labour force participation, to 62.3%, a cycle low. This, though, was likely driven by immigration, and is a volatile series anyway, so doesn’t provide especially much cause for concern.

Naturally, we can lay to rest the idea of a July Fed cut on the back of these figures, though frankly it was always a very long shot indeed. Nevertheless, it’ll be interesting to see whether Governors Bowman and Waller still favour a cut at the end of the month, with such a view now being even more blatantly politically-motivated than it was a week or so ago. My base case remains just one 25bp cut this year, most likely in December.

As for markets more broadly, Thursday proved a very solid day indeed for risk appetite, with the bull case on Wall Street having been further strengthened by the aforementioned jobs data. When this strong underlying momentum is coupled with solid earnings growth, and continued progress towards trade deals being made, it creates a potent mix to fuel further gains, exactly as we are now seeing, with spoos taking out 6,300 yesterday. The path of least resistance continues to lead higher.

Elsewhere, Treasuries sold-off across a flatter curve, amid a hawkish repricing of Fed expectations post-NFP. Still, that move simply took us back towards the middle of the recent trading ranges, in which I expect us to remain – 4.25% to 4.50% in the 10-year, and 4.75% to 5.00% in the 30-year. Fiscal jitters should continue to constrain gains, especially with the ‘one big beautiful bill’ soon to be signed by President Trump.

Probably the most interesting action, yesterday, came in the FX complex. While the dollar jolted higher on the back of the jobs report, these gains had almost entirely fizzled out within an hour or so. If the buck can’t catch a sustained bid on the back of that print, and a noteworthy beat on the ISM services figure, then one begins to question if it can catch a bid on anything at all. My base case remains for a slow and steady USD decline in the months ahead, with 1.20 in the EUR and 1.40 in cable the most obvious targets on this front.

Speaking of cable, I suppose I should probably mention that Chancellor Rachel Reeves was smiling, not crying, yesterday, and that long-end Gilts have retraced about half of Wednesday’s sell-off as well. All well and good, but the fiscal backdrop remains fragile, while the Chancellor is effectively there ‘in name only’ – lacking credibility, and lacking the power to do anything lest backbench MPs rebel.

Reeves remains on borrowed time, and so does that Gilt rally.

LOOK AHEAD – There’s nothing of any interest whatsoever on the data docket today, and with the US out for Independence Day, there’s not likely to be much of interest taking place in markets either.

The perfect day, then, to spend some time off the desk, given that being on the desk will probably be akin to watching paint dry. A long lunch, perhaps, or some cold ones in the sun, maybe, or possibly even both. Whatever, for once, following the US’s lead seems sensible!