April JOLTS Supportive of Hold

MACRO FRAME

Global equity markets appear to be treating US-Iran talks to reopen the Strait of Hormuz as a done deal, leaving Friday’s labor report as the key risk event in its potential Fed policy implications.

STOCK INDEX FUTURES

Equity index futures were muted in overnight trade, as tech/AI optimism continues to fuel the recent rally, which has seen the S&P finish higher for nine consecutive days. All three indexes once again close at record highs yesterday, though the rise in oil prices overnight as a result of renewed tit-for-tat strikes between the US and Iran risks ending the momentum. Still, US Central Command has reinforced that the ceasefire is ongoing, while markets continue to take the strikes in stride as if a deal is almost agreed upon. Today will see the release of ISM’s services PMI survey; the New Orders and Prices Paid subindices will be closely watched for signss on demand and inflationary pressures. New Orders cratered 7.1 points to 53.5 in April, a second consecutive decline toward 50 would signal that the front-loaded demand boost is fading and services momentum is genuinely softening; meanwhile, Prices Paid has held at an elevated 70.7 for two straight months, and any further move higher would reinforce sticky services inflation and further increase expectations of a hike in Fed policy. Monday’s ISM manufacturing PMI data showed the strongest expansion of factory activity since 2022, with new orders, production, order backlogs all rising substantially, while customer inventories remained low, positive signs of demand and future production.

This week’s big event is May’s nonfarm payrolls report; another strong report like April’s would reinforce the view that rate cuts are unlikely in the near term, especially if it shows robust wage gains. Conversely, a downside surprise could stoke recession fears while prompting markets to reassess the outlook for policy easing.

Watch point: Details regarding tanker traffic through the Strait will be a catalyst for global markets and may significantly reprice expectations over Fed policy, though negotiations are likely to need further time.

FOREIGN EXCHANGE

US DOLLAR: The USD index moved higher alongside the rise in oil prices overnight, up 0.10% to 99.32, as the strikes between US and Iran fueled the safe-haven bid. Still, the dollar has roughly maintained a 99.00-99.30 range since mid-May as several counter-acting forces are at play, largely being the inflationary backdrop and resulting Fed expectations alongside risk-on flows away from the dollar as expectations of an extended ceasefire grow. A Reuters poll on Wednesday showed that FX strategists expect the dollar to remain range-bound in the near term before ultimately weakening later in the year. Since the conflict began, the dollar has been a gauge for broad risk sentiment. The main driver of dollar weakness remains risk-on flows in the face of market optimism over an end to the conflict in the Middle East, which markets expect would drop a growing hawkish bias from the Fed. However, pass-through effects from supply chain disruptions and the rise in energy prices are likely to make it difficult for the  Fed to lower rates over the next two quarters even if the Strait was reopened today.

Yesterday’s JOLTS data reinforced the expectation that the Fed can hold on rates for the time being, leaving focus on further news regarding US-Iran peace talks ahead of Friday’s nonfarm payrolls report. For the dollar, this week’s data could serve as a turning point for what the Fed will do next, though we expect a continuation of the status quo with the Fed, as recent labor market data has been supportive of a hold on policy.

Watch point: Currency markets are in wait-and-see mode ahead of Friday’s labor report and any further developments between the US and Iran.

EURO: The euro is 0.15% lower at $1.1613 as traders favored the dollar following the strikes between the US and Iran overnight. Inflation data on Tuesday reinforced the case for policy tightening at the European Central Bank’s June meeting later this month, with headline inflation rising to 3.2% YoY, while core inflation rose to 2.5% YoY. Positively, for the ECB, services inflation eased, the only major component to move downwards. Given that services represent nearly 47% of the inflation basket, the central bank should find some relief regarding the overall inflation narrative. Money markets maintain 97% chance of a hike at the June meeting and see 65 bps of tightening by year-end. For the euro, broader risk sentiment will continue to determine price direction, while the interest rate differential against the dollar remains unfavorable given the recent shift in Fed expectations.

Watch point: While a June rate hike is expected from the ECB, a peace deal and restoration of oil flows through the Strait is likely to reduce tightening expectations.

BRITISH POUND: Sterling fell 0.18% to $1.3472, though it is maintaining its recent range as investors remain cautious over US-Iran hostilities. Notably, the sterling has maintained modest strength despite a dovish repricing of Bank of England expectations, which is largely attributable to the reduction in geopolitical risk and decline in demand for the dollar as a result of US-Iran peace talks despite the overnight events. While a peace deal would see the pound strengthen on the back of risk-on flows, that would also open the door for a resumption of policy-easing from the BoE and lend focus back to the economic challenges for the country. A fully priced rate-hike has been priced out to September, while a second rate hike is expected in February 2027.

Bank of England Governor Andrew Bailey has suggested that the Bank of England has no immediate desire to move on policy, as Bailey said that allowing inflation to run above the BoE’s 2% target was justified given uncertainty over the economic impact of the Iran war and the weak pace of growth. Political risks still pose as a potential downside risk for the pound despite having eased in recent weeks. Mid-June’s Makerfield by-election remains a potential catalyst that could renew discussions over fiscal policy and see Starmer’s leadership challenged.

JAPANESE YEN: The yen is little changed at 159.91 yen per dollar after briefly falling to the 160 level overnight. Prime Minister Takaichi said offered a verbal warning that authorities stood ready to respond to exchange-rate moves. Takaichi’s warning offered the yen support ahead of a speech from Bank of Japan Governor Ueda who said the Bank of Japan needs to discuss the pros and cons of raising rates. Recently Ueda has had a string of hawkish comments, which has suggested that that policy rate has further room to move upwards. Money markets continue to expect a rate hike come June, pricing a 78% chance of a hike, up from 70% before Ueda’s speech. The market sees a total of 44 bps of tightening by year-end. Intervention risk continues to offer the currency support near the 160 level.

AUSTRALIAN DOLLAR: The Aussie is 0.38% lower to $0.7152 as a drop in risk sentiment overnight weighed on the currency. Q1 GDP rose by 0.5%, while annual growth held at 2.5%, the figures were in line with forecasts. Business investment surged amid massive spending on data centers and as much of the equipment was imported it pulled down headline growth. Strength in investment has the opportunity to lift output and productivity over time, which could restrain inflation. For the Reserve Bank of Australia. Demand is still outpacing supply, labor conditions remain tight, leaving inflation conditions pointed upwards. While the RBA has broadly signaled that it is in a wait-and-see mode following three rate hikes earlier this year, markets are still expecting one more rate hike by the end of the year. Trimmed mean measure inflation sits at an annual pace of 3.4%, which is likely to reinforce a tightening bias from the RBA. Markets have slashed tightening expectations in the near term, implying a 7% chance of a June hike to the 4.60% cash rate, while a December hike is priced at 70%. RBA Governor Michele Bullock will speak before lawmakers on Thursday and Deputy Governor Andrew Hauser will speak on Friday.

Watch point: While a durable end to the war would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to keep the RBA on a tightening path.

TREASURY FUTURES

Yields inched higher across the curve alongside the rise in oil prices overnight. Yesterday’s JOLTS data saw yields move modestly upwards as the data revealed that job openings rose +731,000 to 7.618 million in April. That marked largest single-month increase since April 2021 and the highest level since November 2024, far past the consensus estimate of 6.88 million. The job openings rate climbed 40bps to 4.6%, meaning available positions now once again outnumber unemployed workers. On a YoY basis, openings are up +520,000, reinforcing the narrative of underlying labor demand resilience. The surge was almost entirely driven by professional and business services, adding +668,000 openings, a record jump for that category, which some analysts attribute to AI-driven labor demand. Healthcare and social assistance added +89,000 openings. Partially offsetting the gains, finance and insurance shed -135,000 openings. However, hires fell -419,000 to 5.1 million, the second-largest monthly decline since July 2020, pushing the hire rate down 30bps to 3.2%. This “openings up, hiring down” dynamic suggests companies are posting positions but remaining cautious about actually filling them, consistent with elevated uncertainty amid the conflict. The openings-to-unemployed ratio for April works out to approximately 1.03 jobs per unemployed worker, meaning the labor market is essentially at parity, with just over one open position for every person looking for work. However, the ratio’s recovery to above 1.0 is almost entirely a function of the openings surge rather than a drop in unemployment, the unemployed count was little changed at 7.373 million in April. Overall, April’s JOLTS report delivers a mixed but modestly constructive read on the labor market.

The Chicago Fed’s Real-Time Unemployment Rate Forecast for May is 4.32%, edging down from the prior BLS reading of 4.34%. The modest improvement is largely attributable to a slight decline in separations, as reflected in the Chicago Fed’s Layoffs and Other Separations Rate. Treasury markets continue to take directional cues from oil prices, as a sustained move higher in crude would carry the greatest risk of re-anchoring embedded inflation expectations at elevated levels. The 10-year yield has tracked the trajectory of December Brent crude closely over recent months, though there are emerging signs that this correlation is beginning to soften.

Watch point: The path to loosening has appears nonexistent as inflation has evidently become more broad based. We no longer expect the Fed to lower rates in 2026 as building inflationary pressures are evident in stickier readings.

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