U.S. Indices closed higher on Tuesday after again reversing overnight weakness on trade worries, and once US trade was underway. Upside extended in the wake of the rise in April JOLTS ahead of the May NFP due Friday, which also saw bonds pare earlier gains. Sectors were predominantly firmer, with outperformance in Technology, Energy and Materials. Meanwhile, Communication Services, Real Estate and Consumer Staples lagged. The communications sector was weighed on by losses in Alphabet (GOOGL) following more reports that Apple (AAPL) is considering Perplexity as an iPhone search alternative from Google Search. T-Notes saw a bid overnight and throughout the European session, primarily sparked by the strong 10 Year JGB auction, although upside pared thereafter after the rise in JOLTS, seeing T-Notes settle little changed. In FX, the Dollar staged a comeback with the Dollar Index closing back above 99.00 while the turnaround in the risk environment weighed on haven currencies JPY and CHF. Oil prices continued to rise this week, largely on the risk environment, but also on reports from Kpler that OPEC+ did not even discuss hiking production above 411k BPD, despite reports late last week suggesting they were considering such a move. Gold and Silver prices fell as yields rose and as sentiment was buoyed. On Fed speakers, Bostic said one cut this year still seems possible, while Cook toed the party line that policy is well-positioned, but warned tariffs could lead to a stagflationary environment. Goolsbee reiterated that they could see direct tariff effects on prices within a month, but warned the slowdown related to tariffs might not show up for a while in the data. Attention on Wednesday turns to the ADP employment report and the ISM Services PMI ahead of the NFP report on Friday. The Job Opening and Labour Turnover Survey rose to 7.4 million from 7.2 million, above the expected 7.1 million. The report notes that both hires and total separations were little changed at 5.6 million and 5.3 million, respectively. Within separations, quits (3.2 million) and layoffs and discharges (1.8 million) saw little change. The vacancy rate ticked up to 4.4% from 4.3%, while the quits rate eased to 2.0% from 2.1%. The number of hires rose by 169k to 5.573 million, from 5.404 million in March. Analysts at Pantheon Macroeconomics describe the pick-up in JOLTS as an aberration, given the ongoing decline in Indeed’s measure of postings throughout April and May, as well as the drop in the hiring intentions indexes of the regional Fed surveys. However, the consultancy notes the first estimate is often revised. PM also highlights “The ratio of job postings to unemployment—a key barometer of labor market tightness—edged up to 1.03 in April, from 1.02 in March, but remained well below last year’s 1.15, which was close to the 1.16 average in the two years before the pandemic.” Fed Member Bostic reiterated that the best monetary policy approach at this stage is one of patience, given the overall health of the US economy. He emphasised that the Fed has time to watch how uncertainty, particularly around trade, resolves, and stated clearly that he is in no hurry to adjust policy. While Bostic still sees a possible path to one rate cut this year, he stressed that more progress on inflation is needed before he would support such a move. He remains cautious and he is not ready to declare victory on inflation, highlighting that core prices remain a concern and that “there is still a ways to go.” Bostic noted that it remains unclear how tariffs will affect the inflation outlook, and although sentiment has turned gloomier, he noted that hard data has yet to reflect this shift. Bostic said it is a “tough call” to say whether the Fed would be cutting rates at all this year if not for trade-related uncertainty. He added that while the job market appears broadly healthy, some signs of softening have emerged. Importantly, he noted that there is no evidence yet that tariffs are pushing inflation higher, and a recession is not in his baseline forecast. Meanwhile, Governor Cook stated that current Fed policy is well-positioned to handle a range of economic scenarios and reaffirmed her commitment to keeping longer-term inflation expectations anchored. She emphasised the importance of balancing the Fed’s dual mandate when considering future policy decisions. Cook highlighted that trade policies are creating risks for both inflation and the labour market, noting there is emerging evidence that these policies are already impacting the economy. She anticipates economic growth will slow this year but maintains that the economy remains in a solid position despite the uncertainty. Regarding inflation, Cook warned that trade policy may make it more difficult to bring inflation down, particularly as firms may now be more willing to raise prices compared to the past. She acknowledged that tariffs present clear challenges to both sides of the Fed’s mandate but said it’s important to see how the situation evolves before drawing conclusions. She also warned that tariffs may lead to stagflation-like conditions. She also noted she cannot prejudge what the FOMC will do now with rates, Fed has to be open to all possibilities. She also spoke on the bond market, noting she always watches market functioning and that bond markets proved resilient in April amid stress. Elsewhere, Oil continued to build value above $60, ending Tuesday with a gain of 1.5% while profit-taking in Gold saw the precious metal close lower by 0.8%.
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