SIFs Higher Post-NFP

MACRO FRAME

June’s hiring data (+57,000) missed expectations, though still gives the Fed plenty of space to navigate a rate hike later in the year.

STOCK INDEX FUTURES

Equity index futures were mostly higher overnight, with the Nasdaq leading gains as chip-stocks lead gain pre-market. The Dow closed Thursday at a fresh all‑time high, its 20th record close of the year. All three major indices finished the holiday‑shortened week higher, even though the S&P and Nasdaq dipped on Thursday. Semiconductors remain the key swing with the PHLX semiconductor index is down about 11.4% so far in July, highlighting recent pressure in the AI/memory complex. Korea’s SK Hynix plans to raise over $29 billion via ADRs on Nasdaq this week, adding a sizable new supply event and keeping attention on the global chip cycle and AI infrastructure trade. It’s a light data week; the main focus is Wednesday’s release of the Fed’s June meeting minutes, which follows June’s lackluster payroll data, which showed job growth slowed sharply in June. WTI futures are trading below $69bbl early Monday, back near lower levels, which helps temper near‑term energy‑driven inflation pressure.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure

CURRENCIES

US DOLLAR: The USD index is 0.22% higher to 101.07, recovering most of its losses from Junes payroll data, which saw markets push Fed rate hike expectations out to December, from earlier pricing of October. Markets are now focused on Wednesday’s FOMC minutes for more detail on the committee’s reaction function under Warsh. He has warned that anyone expecting the Fed to go easy on inflation “could be disappointed,” keeping a hawkish bias in play even as near‑term hike odds have faded slightly. The dollar index recently hit a 13‑month peak but has since pulled back, with some strategists shifting from outright bullish to more neutral, noting the risk‑reward on further USD upside is no longer a one‑way bet. The dollar is has been driven more by rates and macro factors than geopolitical developments over the last couple of sessions, lower oil prices and direct US-Iran talks would otherwise see a flight away from dollar safety.

Watch point: Recent data has reinforced expectations that Fed policy will move higher before year-end. For now, markets will look to inflation signals for guidance on potential rate-hike timing.

EURO: The euro is 0.19% lower at $1.1416, more-or-less reflecting consolidation in the dollar. The European Central Bank publishes the account of its June meeting on Thursday, after its 25 bp rate hike that took the deposit rate to 2.25%. Softer-than-expected inflation data and remarks from ECB President Lagarde that were less hawkish than expected have kept a lid on the euro and weighed on rate hike expectations. Eurozone PPI and retail trade for May on Monday; German factory orders Monday and industrial production Tuesday; Italian industrial production and final German/French June inflation on Friday will be key events for the euro this week.

Policymakers at the ECB have warned that the oil price shock is expected to continue to affect the economy, and that they remained concerned about inflation. Incoming data (PPI this week) could change the outlook in either direction: on the hawkish side, elevated volatility, second-round inflation effects, and geopolitical uncertainty point to upside risks in inflation. On the dovish side, if the current energy environment persists, the bank could afford to wait until September, when if offers fresh projections on the economy to decide on the appropriate path for policy. However, given the current environment and previous policy response from the bank, a hawkish bias is likely to persist until policymakers gain a better understanding of the second-round effects of inflation, which may not come until later in the year. Traders are fully priced for a hike in December, though remain favorable to a move upwards at the October meeting. The market is seeing a total of 25 bps of tightening by year-end.

Watch point: A peace deal, restoration of oil flows through the Strait, and easing services inflation are likely to push back tightening expectations, though policy expectations are still biased upwards.

BRITISH POUND: Sterling is 0.11% lower at $1.3342, breaking a seven-day win streak against the dollar. Last week’s US jobs report showed weaker‑than‑expected payroll gains for June (and downward surprises for May and April), prompting investors to scale back bets on an immediate Fed hike; that helped GBP gain about 1.1 against USD in its best week in three months. With oil prices back toward $70bbl, energy‑driven inflation pressure has eased, reducing the urgency for further rate hikes globally, including at the Bank of England. UK money markets now price roughly a 70 chance of just one BoE hike this year, down from expectations of at least one and a good chance of a second only a few weeks ago. Governor Bailey has pushed back against near‑term cuts, saying the BoE is not yet in a position to consider lowering rates, reinforcing a cautious “hold but not cut” stance.

Recent inflation and GDP data have supported our view that the BoE has limited scope to tighten policy and that money markets are overzealous in pricing rate hikes from the BoE. We continue to expect no upwards policy action from the central bank. Money markets are seeing 18 bps of tightening by year-end and a 11% chance of a hike at the July meeting.

Watch point: We expect macro factors to pressure the pound following a formal cease in hostilities between the US and Iran. We look for GBP/USD to weaken over 2H 2026.

JAPANESE YEN: The yen fell 0.63% to 162.43 yen per dollar, just above last week’s 162.84 low for the yen, its weakest since 1986, keeping the pair firmly in the intervention danger zone. Thursday’s sudden yen spike has left traders on edge; authorities are seen as moving toward a more targeted, less telegraphed approach aimed at squeezing speculators and raising the cost of short‑yen positions, rather than defending a clearly advertised level. For the yen bearish pressure in expected to continue in the near-term, hawkish Fed risk and large US–Japan rate differential still dominate, and any intervention is unlikely to change the underlying direction, only volatility. Meanwhile, concerns over inflation stemming from a weak yen are likely to grow, in part because of the BOJ’s delay in raising rates further. The market sees a total of 20 bps of tightening by year-end, with a move expected to come in January of 2027.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie slipped 0.22% to $0.6927. Markets are largely expecting the Reserve Bank of Australia to be done with raising rates this year, leaving near-term price direction increasingly driven by market odds on a rate hike from the Fed. Currently, yield differentials are moving in favor of the dollar. The data calendar is once again thin this week for the Aussie. Minutes of the RBA’s June policy meeting showed the board still saw upside risks for inflation and stood ready to raise rates again if needed, having already hiked three times this year. However, members at the RBA were increasingly concerned about the risk of a downturn in the housing market, highlighting the board’s focus on the balance of risks. The recent drop in oil has led investors to pare back bets of another rate hike to just 32%, and to flirt with the idea of cuts as early as mid-2027.

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 be in focus in the RBA’s policy minutes.

TREASURY FUTURES

Yields moved lower across the curve overnight, though maintained a tight range. Total nonfarm payrolls rose by just +57,000 in June, a slowdown from May’s +172,000 and well below the consensus forecast of 114,000. The unemployment rate held at 4.2%, with the number of unemployed persons at 7.1 million. The readding is consistent with the “low-hire, low-fire” regime, but the magnitude of the miss is notably deeper than expected. The +57,000 headline masks a two-way story. The services-driven pockets of resilience (professional services, social assistance, healthcare) delivered, but leisure & hospitality hemorrhaged 61,000 jobs, a reversal from May’s +70,000 gain, which was partially inflated by World Cup staffing. Stripping out that reversal, the underlying labor market trend aligns more closely with the ~+36,000/month 12-month average pace. Meanwhile, the prior two months were revised lower by 74,000 from previously reported figures.

Watch point: The Warsh-led Fed held on rates and signaled broad institutional change. Mainly, markets should expect fewer words from the Fed and less policy signaling, raising near-term rate volatility with incoming data.

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