The week of July 1 will have a lot of news flow in a shortened period. In the US, there will only be a half-day of trading on July 3rd, with the market closed on July 4th. However, there is a complete data slate, including Fed minutes, the first round of the French elections, and a UK general election.

The outcomes of this news flow will have the most significant impacts on the currencies and rates markets. It seems possible that the trends of higher rates on the back of the curve and a stronger dollar that started at the beginning of 2024 are only likely to get more powerful.

French Elections

The first round of French parliamentary elections is on June 30, and European markets have been nervous, as noted by the widening spreads between French and German rates. The current spread of 80 bps is the highest since the European debt crisis.

There has even been a widening of spreads between the 30-day implied volatility of the S&P 500 and Stoxx 50 indexes. The implied volatility levels of the Stoxx 50 have risen materially since the middle of June, a sign of the divergences between the US and European markets.

US Data

Meanwhile, the US data flow will start on Monday morning with the ISM manufacturing report, which is expected to show a mild improvement in the sector for June, climbing to 49.2 from 48.7 in May. Meanwhile, the prices paid index is forecast to fall to 55.8 from 57, with employment to 50 versus 51.1 last month.

The JOLTS data comes Tuesday and is expected to fall to 7.86 million from 8.06 million in May. This data has always been hard to predict and often comes with significant revisions. However, one clear thing is that the number of job openings has been decreasing. The Indeed data does show that the trend in job openings in May continued, but it also indicates that the trend lower may have stalled out in June.

The NFIB employment data shows that hard-to-fill jobs ticked higher in May. This could be something to watch for in the JOLTS data for June because the NFIB data appears to lead the JOLTS data.

Wednesday will bring the ADP employment data, which is expected to show that 158,000 jobs were created in June, up from 152,000 in May. The ADP data continues to be a poor predictor of the official government report and should be considered a separate measure of employment. The two reports have sometimes not even trended in the same direction.

The wage data from ADP can offer some insights because it has more or less trended with the BLS wage growth values, and both the ADP and BLS wage growth data have flattened out in recent months. For the Fed to see inflation come down further, it will need to see wage growth continue to move lower, so the ADP report may offer insights into what is happening or not.

Fed and UK Elections

Oddly, after the equity market has closed on July 3, the Fed minutes will be released at 2 PM ET. The Fed minutes may not offer many new insights into what the Fed is thinking about these days, especially since we hear from most participants on a near-regular basis. The Fed minutes are likely to acknowledge the welcomed May inflation data, but are also likely to signal that the job is incomplete and that the first rate cut is expected not to come until the end of 2024.

Meanwhile, the UK general elections will occur on July 4, with the Labour Party in the clear lead. The French and UK elections may not seem like much of a worry, but to this point, these pending elections have weighed on the currencies of the euro and the pound versus the dollar.

The uncertainty surrounding the potential outcomes for both sets of elections has helped to position the dollar index to break out of a year-long consolidation pattern.

Job Data

Of course, the job data we get on the morning of July 5 will be the highlight of a very short week. Expectations are for 188,000 jobs to have been created in June, down from 272,000 in May. Meanwhile, the unemployment rate is expected to remain at 4.0%. Also, wage growth will likely slow to 0.3% m/m, down from 0.4% in May, while remaining unchanged at 4.0% y/y.

Analysts haven't been very good at predicting the BLS job data. Since January 2022, analysts have only overestimated the number 4 times, so the BLS job report has a solid history of coming in hotter than expected.

The continuing claims data have started to rise for the time being, clearly breaking out of a reasonably tight range going back to the summer of last year. This could be the start of a more meaningful uptick in the unemployment rate over the near term; it doesn't seem to suggest that a big uptick in the unemployment rate in June occurred.

Remembering that the non-farm payroll and the unemployment rate come from different surveys is also essential. The unemployment rate comes from the household survey, and one reason why the unemployment rate rose in May wasn't only due to the number of unemployed people rising but also due to the size of the labor force shrinking. The number of unemployed workers rose by 157,000, while the size of the labor force fell by 250,000. So, it is possible that depending on the size of the labor force, the unemployment rate could slip because when accounting for rounding, the actual unemployment rate in May was 3.96%.

If analysts are indeed underestimating the non-farm payroll numbers again, while wage growth stays fairly consistent, with unemployment remaining unchanged. It seems possible that the softening of the labor market won't be seen in the June labor report, and that could help rates rise. The gains seen following the inline PCE report on June 28 have kept the uptrend in place since the beginning of 2024.

Overall, this will be a short week but an incredibly busy one. Markets may have difficulty digesting all the news at once, but more importantly, the trends of higher rates and a stronger dollar that have been in place since the beginning of the year should continue.