JOLTS Data Signals Cooling Labor Conditions

STOCK INDEX FUTURES

The indexes are lower ahead of Friday’s payroll data; large tech shares were mostly down alongside big financials names after their downturn yesterday. Trade data out of the US showed that the trade deficit narrowed to its lowest level since 2009 in October, thanks to a record level of exports and a drop in imports. US exports 2.6% to $302 billion, the highest value on record. Goods exports, driven largely by increases in nonmonetary gold other precious metals, while exports of pharmaceutical preparations fell. Imports fell 3.2%,to $331.4 billion, marking their lowest level since January 2024 and reflecting the dampening impact of tariffs on consumer demand.

President Trump announced that he would be moving to ban institutional investors from buying single-family homes in a move to make homes more affordable. The announcement sent shares of Private Equity firm Blackstone down over 5%, while asset manager Black Rock dropped 3% among other financial services companies that fell as a result. The president also said that he would move to prevent defense companies from issuing: stock buybacks, large executive pay packages, and dividends in a move to increase production. The statement sent the industrial and aerospace sector lower.

ISM Services PMI data for December increased for a third consecutive month to 54.4 in December from 52.6 in November, well above forecasts of 52.3. The reading pointed to the strongest growth in the services sector since October 2024, with all subindexes in expansion territory for the first time since February. Business reported a boost from the holiday season, while also reporting a rebound in employment and declining, yet elevated price pressure. Meanwhile, JOLTS data did little steer direction on the labor market other than pointing to a cooling, yet stable labor market as job openings decreased, while layoffs and new hires remain little changed from previous readings.

ADP private payroll figures data showed that the economy added 41,000 jobs in December, below forecasts of 49,000. ADP’s report detailed that hiring was led by the education and health services and leisure and hospitality sectors. That is unsurprising given that the healthcare sector has been responsible for most of the hiring in the economy over the past months, while the holiday season likely brought in some hiring for the hospitality sector.

A potential notable event on Friday could be the Supreme Court’s ruling on Trump’s tariffs, for which prediction markets are placing an unfavorable outcome for the Trump administration. Polymarket odds are pricing a 70% chance of an unfavorable ruling for the administration in the case. The Supreme Court announced that it would issue a set of opinions on Friday, though it did not disclose what cases it would be ruling on. This has raised expectations that the administration’s case regarding the legality of the global tariffs imposed by the administration could be on the docket. An unfavorable ruling could lead to volatility in the bond market, as tariffs are expected to lower the national deficit by $3 trillion over the next ten years.

CURRENCY FUTURES

US DOLLAR: The dollar is higher, getting a boost from October’s trade data and labor productivity figures, which showed a growth over last quarter. JOLTS job openings and ISM’s Services PMI survey data resulted in a knee-jerk reaction, but a souring appetite for equities as the session wore on saw traders move into bonds and the dollar, ultimately lifting the currency on Wednesday. ISM’s Services PMI data showed elevated price pressures for companies, but remained significantly below levels seen over the summer and fall. Friday’s payroll data will be the highlight of the week for markets, as it will offer a solid assessment of the US labor market in a report that should be free from any shutdown-related impacts. Currently, markets are pricing an 18% chance of a rate cut at the January meeting, with a rate cut not fully priced in until the June meeting.

EURO: The euro is lower against the dollar. German factory orders rose 5.6% in November, above estimates for a 1.0% rise and November’s figure of 1.6% to mark the third straight gain in what is a positive sign for Germany’s manufacturing sector after facing a tough 2025. Orders were driven largely by a significant rise in the manufacture of fabricated metal products and other transport equipment, which received a high volume of large-scale orders. Eurozone CPI figures largely came in as expected, reinforcing the view that European Central Bank policy is likely to remain unchanged for quite some time. Prices in the eurozone rose 2.0% on the year in December, while core prices rose 2.3%, which was just below forecasts of 2.4%. French and German inflation figures came in below forecast, with a 0.7% year-over-year rise in France, which was below the previous reading and forecasts of a reading of 0.8%. Meanwhile, prices in Germany rose 1.8% year-over-year in December; that is below November’s 2.3% and forecasts for 2.0%. Notably, for Germany, it was the first time the reading fell below the ECB’s 2% target since September 2024. The euro’s strengthening in 2025 has had a disinflationary effect on prices, mainly tied to imports, in the eurozone, as the stronger currency has made foreign goods cheaper. Given the seeming divergence between central bank policy, data out of the US this week will serve as the primary catalyst for moves in the euro.

BRITISH POUND: The pound is lower, set for its third straight decline against a strengthening dollar ahead of US payrolls data on Friday. Recent strength in the pound has come from improved investor sentiment in Britain as worries ease about the UK’s fiscal position and hints that the UK is working on a closer relationship with Europe. Consumer credit and mortgage lending data for November, which showed that mortgage approvals fell less than expected and that there was an increase in consumer borrowing, came out on Monday and did little to move the currency, suggesting that traders will be focusing on data out of the US for moves in the sterling. The Bank of England lowered rates by 25 bps last month and is expected to deliver one more rate cut this year, although officials at the bank cautioned that the pace of easing could slow as the bank does not want to jump the gun on inflation. The recent rate cut brought a tight 5-4 vote, with BoE Governor Andrew Bailey offering the tie-breaking vote.  Money markets suggest the next rate cut could come in April or June, with the latter meeting being fully priced in for a cut.

JAPANESE YEN: The yen fell against the dollar, nearing the 157 level following a rise in Japanese bond yields stemming from concerns over investor appetite for the debt securities. Short-term yields have faced upward pressure as the Bank of Japan raised its key policy rate in December and signaled more hikes were on the way. But trade friction with China and data on Thursday showing a sharp decline in real wages have added to the case for the central bank to hold off on tightening. However, there is growing confidence that Japan is in a good place to move into a more sustainable, growth-driven economy, but those hopes have done little to support the currency. The cabinet recently approved a 122.3 trillion yen budget, which aims to balance aggressive fiscal spending and debt management by curbing new bond issuance. However, Japan’s public debt is twice the size of the country’s economy, giving the government limited flexibility to implement further stimulus measures. These dynamics continue to present downside pressure against the currency; expectations that the BoJ will raise rates slower and more cautiously than expected have removed some near-term strength.

AUSTRALIAN DOLLAR: The Aussie is lower, following moves in precious metals and US equities. Data out on Wednesday showed that consumer prices rose 3.4% on the year in November, below forecasts for 3.6% and a drop from October’s reading of 3.8%. Trimmed mean CPI, which is a key measure of core inflation for the Reserve Bank of Australia, rose 0.3% in November and 3.2% for the year, staying well above the target 2%. The figures come at a time when traders have been speculating that the Reserve Bank of Australia could soon be raising interest rates as multiple inflationary pressures have become evident in the economy. Capacity utilization, housing demand, facets from GDP data, and other indicators have all recently posted hotter-than-expected readings, leading some at the RBA to signal that an interest rate hike could be on the table soon. The inflation data has shifted market-implied odds of the next rate hike to the halfway point of the year, with markets fully pricing in a rate cut from the RBA at its June meeting. Before the data was released, markets had priced the first rate hike of 2026 to come in either March or May. May is still favorable for a potential rate hike from the bank. Still, the central bank sees the monthly inflation figures as volatile and places greater emphasis on its quarterly inflation report, which is due in late January. A stronger-than-expected Q4 core inflation print is likely to shift rate cut timing odds once again. Building approvals data and some trade data for November are also due for release this week, which could offer some signals on economic momentum in the country. Recent figures showed that Australia’s economy grew 0.4% in the third quarter, up 2.1% from a year earlier.

INTEREST RATE MARKET FUTURES

Yields are higher across the curve as selling overnight continued into the morning ahead of tomorrow’s payrolls data. November’s JOLTS report reinforced recent themes of the labor market’s “low hire, low fire” environment. Jobs openings dropped to a 14-month low at 7.15 million, below expectations of 7.6 million and down from October’s reading of 7.45 million. Job openings decreased in all but one sector, construction. Meanwhile, November saw 5.11 million new hires in November, down slightly from October, while total separations remained unchanged at 5.1 million. Layoffs and discharges (involuntary separations initiated by the employer) were little changed and in line with figures from the past four months; the layoff rate edged down to 1.1%, which is a positive and signals a labor market that is stable. However, the quits rate, despite rising to 2% (from 1.9%), remains a cautionary signal that workers are finding less mobility in the economy and are instead choosing to stay in their current roles. When the labor market is healthy, workers enjoy a stronger sense of job mobility in search of better opportunities. Consequently, this dynamic drives wage growth and economic momentum. The quits rate now remains below its pre-pandemic level, reinforcing the theme that the labor market has become somewhat stagnant.

ISM’s Services PMI figure surprised to the upside and showed that economic activity in the services sector increased for the third straight month at its strongest growth rate since October 2024. The prices gauge remained elevated but has continued its downtrend since October, while survey respondents still noted tariffs as having a direct impact on prices. Meanwhile, the employment index rose to its highest level since February 2025, with the overall trend reflecting solid growth since July 2025.

The two sets of data offer a bit of a mixed bag ahead of Friday’s labor report. The JOLTS data reaffirmed labor market themes of reduced demand for labor and a lack of firing/layoffs, while ISM’s data points to a potential upside in hiring in December alongside positive economic momentum. ISM’s Manufacturing PMI survey reported shrinking factory activity in the US for the tenth month in a row, while price pressures stabilized but remained elevated. Elsewhere in the JOLTS data, revisions to October’s figures saw increases in hiring and quits categories, while reporting downward revisions to the number of open jobs and layoffs.

The question regarding what is a cooling labor market and one that is cooling faster than expected remains at the center of monetary policy debate and signals on how the labor market is walking that line will likely serve as the best indicator on future Fed moves. Job growth is likely to remain sluggish for the economy, a notion that policymakers understand and fully expect as labor supply has been reduced alongside a drop in demand for labor as well. That leaves the question about the level at which job growth should be maintained to preserve a solid labor market in the air. Fed Funds futures continue to remain favorable to a rate cut from the Fed in April or June, ahead of Friday’s report. Markets are also pricing a second  reduction in September or October.

The spread between the two- and 10-year yields is 68.30 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.490%.

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