Daily market snapshot

Thursday, 07/3/2025 p.m.

• Upside surprise in payrolls sparks pre-holiday rally – Markets delivered strong gains* in today's holiday-shortened trading session after a better-than-expected June U.S. labor report. Major U.S. large- and small-cap indexes jumped between 0.75%-1.0% over the day*, while Canadian equities were also up, albeit by a more moderate 0.5%*. Meanwhile, traders trimmed expectations for Fed easing this year in the wake of this data, with 51 basis points (0.51%) of easing now priced over this year in total, compared with 65 basis points at close of play yesterday**. This shift appears to be driving a broader sell-off in Treasury markets, with the 2-year yield up 10 basis points and the 10-year yield up 6 basis points* at market close. Finally, the trade-weighted dollar staged a modest rally, rising 0.45% on the day**, helped by reassuring economic data and an increase in domestic interest rates.
   
• Reassuring headlines, weaker details – The headlines from the June labor report were stronger than expected. A headline increase in payrolls of 147,000 over the month, coupled with net upward revisions of 16,000 to the past two months of data***, help provide some reassurance that firms continue to hire amidst elevated trade-policy uncertainty. At the same time, the headline unemployment rate fell to 4.1%***, in contrast to expectations for a rise to 4.3%*. However, there were a couple of softer spots in the report. First, the decline in unemployment was in part caused by workers leaving the labor force, with the participation rate falling again in June. Second, job growth in June was flattered by a large gain in public-sector jobs, with private hiring weaker at 74,000***. Still, these data are not consistent with any abrupt slowdown in the economy, and they help support the Fed's patient approach to cutting interest rates. In our view, a rate cut in July looks unlikely, with the Fed much more likely to start easing again in September, data permitting. 
   
• Congress set to pass its giant tax and spending bill – The House of Representatives is fast approaching a final vote on the signature One Big Beautiful Bill Act (OBBBA) legislation. Once passed this will head to the president's desk to be signed into law before Republicans' self-imposed July 4 deadline. OBBBA will deliver a very large package of tax and spending measures, which in aggregate will cost around $3.3 trillion over the next decade, excluding interest costs, according to the Congressional Budget Office estimates. In practice, the legislation will extend the expiring personal tax-cut provisions that were passed during the first Trump administration in 2017, while also adding additional tax reductions for households and businesses. These giveaways will only partly be paid for by lower government spending and changes to green energy tax credits. In our view, the legislation will add a small tailwind to growth in 2026, albeit at the cost of a worse longer-term debt outlook for the U.S. federal government.
   

James McCan
Investment Strategy

^{*FactSet
**Bloomberg
***Bureau for Labor Statistics}  

Wednesday, 07/2/2025 p.m.

• Stocks close higher following U.S.-Vietnam trade agreement – U.S. equity markets closed higher on Wednesday, following a trade agreement between the U.S. and Vietnam. The U.S. will charge a tariff rate of 20% on goods imported from Vietnam, well below the 46% announced in early April, while Vietnam has reportedly agreed to drop levies on U.S. imports.* For goods the U.S. deems have been transshipped through Vietnam (originated from a country other than Vietnam) a 40% tariff rate will apply.* From a leadership standpoint, growth segments of the market, such as technology and consumer discretionary, were among the top performers, while defensive sectors, such as health care and utilities, were among the laggards.* On the economic front, the U.S. ADP employment report for June showed job growth was lower than expected, with private payrolls contracting by 33,000 for the month, signaling easing labor-market conditions.* In Washington, the reconciliation bill is passed back to the House of Representatives following amendments from the Senate, where it's currently under further debate. Bond yields finished higher, with the 10-year Treasury yield rising to around the 4.3% mark.* 
   
• ADP employment report points to softening jobs market – The ADP employment report for June showed that private employment contracted by 33,000 for the month, below expectations for a gain of 115,000 and the first negative monthly print since 2023.* Looking into the drivers, most of the weakness was concentrated in the services side of the economy, with sectors such as education and health services, along with professional and business services, seeing the steepest payroll declines, while goods-producing industries posted modest job gains.** This morning's softer-than-expected job data follows a more upbeat JOLTS job openings report yesterday, which showed job openings climbed to a six-month high in May, signaling healthy demand for labor.* In our view, the tepid job growth reported by ADP over the last two months is indicative of businesses showing reluctance to add additional payrolls amid a changing policy backdrop and slowing economic growth; however, signs of firing appear to have been muted, with the unemployment rate at 4.2% and initial jobless claims below 240,000 last week.* The labor market will remain in focus, with the nonfarm-payrolls report for June out tomorrow morning. Expectations are for nonfarm payrolls to rise by 115,000 for the month and for the unemployment rate to tick higher to 4.3%.*
   
• Trade policy in focus ahead of July 9 deadline – Trade policy remains in focus for investors, with the expiration of the 90-day tariff pause just a week away. Reports suggest that talks between the U.S. and European Union are progressing, as are negotiations between the U.S. and Canada following Canada’s decision to withdraw its proposed digital services tax. Additionally, the U.S. announced today that it has reached an agreement with Vietnam to lower tariffs on Vietnamese exports to 20%.* However, trade discussions with Japan have reportedly not advanced as smoothly, with Japanese policymakers hesitant to agree to a deal that maintains the current U.S. 25% tariff on auto imports. While developments in trade negotiations could contribute to uncertainty in the coming week, we believe the peak of trade-policy uncertainty has passed, and we do not expect a return to the tariff levels announced in early April. However, despite this de-escalation, tariff rates are still set to be significantly higher than the roughly 2.5% rate at the start of the year.*** In our view, this could pressure corporate profit margins and household purchasing power, potentially leading to slower economic growth. The upshot, in our view, is that household balance sheets remain healthy, and economic data has been resilient through the first half of 2025, which is why we expect moderating but positive economic growth over the remainder of the year.
   

Brock Weimer, CFA
Investment Strategy

^{*FactSet **ADP June National Employment Report ***U.S. International Trade Commission}
 

• Stocks close lower following strong gains – Equity markets finished lower on Tuesday, pulling back from record highs. Materials and health care stocks posted the largest gains, while the communication and tech sectors lagged. Bond yields rose, with the 10-year Treasury yield at 4.25%. In international markets, Asia finished mixed overnight, as a key manufacturing Purchasing Managers' Index (PMI) for China rose to 50.4 in June, ahead of forecasts and reflecting expansion.* Europe was mostly lower, as the flash estimate for eurozone CPI inflation ticked up to 2.0% annualized in June, as expected and in line with the European Central Bank's target.* The U.S. dollar extended its decline against major international currencies. In commodity markets, WTI oil traded higher as markets await the outcome of the OPEC+ meeting on July 6. 
   
• Manufacturing indexes rise in June: The final S&P U.S. Manufacturing PMI rose to 52.9 in June, well above estimates calling for a drop to 49.3. The figure remained above the key 50.0 mark reflecting expansion for the sixth consecutive month.* The Institute for Supply Management (ISM) Manufacturing PMI rose to 49.0, narrowly missing forecasts for a larger increase to 49.1.* Within ISM's components, supplier deliveries and production were the largest positive contributors, while employment and new orders were the main detractors**. Overall, we view these readings positively, as the manufacturing sector appears to be generally stable, helping provide broader support for the economy and labor market. Separately, services activity, which represents more than 70% of the U.S. economy, has remained in expansion territory, though at a slowing pace.* Resilient economic growth would be supportive of the healthy labor market and consumer spending, in our view.
   
• Job openings higher than expected – Job openings rose to 7.8 million in May, beating forecasts to decline to 7.3 million. The number of people voluntarily leaving their jobs (quits) held about steady at 3.3 million, typically indicating confidence in employment prospects, while layoffs and discharges were little changed***. We believe these readings reflect a healthy labor market, with job openings exceeding unemployment of 7.2 million. Total nonfarm payrolls will provide a deeper look at the labor market on Thursday, with forecasts calling for 115,000 jobs created in June and the unemployment rate to tick up to 4.3%*.
   

Brian Therien, CFA
Investment Strategy

^{*FactSet **Institute for Supply Management ***U.S. Bureau of Labor Statistics}
 

• Stocks close higher on easing trade tensions – Equity markets rose on Monday, with the S&P 500 and Nasdaq reaching new record highs to close out the first half of the year. In a sign of easing trade tensions, Canada rescinded its proposed digital services tax, which would have applied to foreign and domestic technology companies at a 3.0% rate. President Trump had suspended U.S.-Canada trade talks last Friday in response to the planned levy. Technology and financial stocks led markets to the upside, while the consumer discretionary and energy sectors lagged. In international markets, Asia finished mixed overnight, as China's manufacturing Purchasing Managers' Index (PMI) edged higher in June but remained in contraction territory for the third consecutive month, as expected.* Europe was broadly lower despite Germany's CPI inflation cooling to 2.0% annualized in June, in line with the European Central Bank's target for the region.* The U.S. dollar declined against major international currencies. In commodity markets, WTI oil was down on easing geopolitical risks in the Middle East and the prospect for additional supply hikes, as OPEC+ meets on July 6.
   
• Bond yields tick down – Bond yields fell, with the 10-year Treasury yield at 4.24%. The benchmark yield has pulled back from its May peak near 4.60%. Bond markets are pricing in expectations for three cuts to the fed funds rate this year**, above the Fed's own forecast for two cuts.*** Resilient, though likely slower, economic growth could cut demand for credit and loans, which can reduce the difference between long- and short-term interest rates, known as a flatter yield curve. Combined with the potential for additional Fed interest-rate cuts, yields should remain contained to the upside, in our view. On the other hand, we believe concerns with widening deficits and uncertainty around inflation could prevent yields from sustainably falling much further. Overall, we expect the benchmark Treasury yield to remain mostly rangebound in the 4.0%-4.5% range as it has been for most the year.
   
• Markets await manufacturing activity for June: The final S&P U.S. Manufacturing Purchasing Managers Index (PMI), to be released tomorrow, is expected to fall to 49.3, below the key 50.0 mark, reflecting contraction for the first time this year.* The Institute for Supply Management (ISM) Manufacturing PMI is forecast to improve to 49.1, from 48.5 in May.* Importantly, services activity, which represents more than 70% of the U.S. economy, has remained in expansion territory, though at a slowing pace.* Resilient economic growth would be supportive of the healthy labor market and consumer spending, in our view.
   

Brian Therien, CFA
Investment Strategy

^{*FactSet **CME FedWatch ***U.S. Federal Reserve}
 

• Equity markets add to weekly gains - Stocks rose modestly, with the S&P 500 reaching new record highs—now up 23% from its April 8 low*. The rally has been fueled by a combination of trade-deal optimism, robust corporate earnings, expectations for lower interest rates, and easing geopolitical tensions. These factors have helped the market fully recover after coming close to bear territory earlier this year. News that Trump is terminating trade talks with Canada over its digital services tax triggered some volatility intraday but was not enough to change the market's positive momentum. Shares of Nike surged 15% after the company issued better-than-expected guidance, signaling that its recent sales slump may have bottomed out*. In commodities, crude oil was little changed but down 12% for the week, its biggest decline in two years*. 
   
• All eyes on trade ahead of deadlines – Today President Trump said he was ending all trade discussions with Canada, as the country proceeded with its digital services tax on technology companies. The first payment for Canada’s digital tax is due Monday and covers revenue retroactively to 2022. This development adds uncertainty, but negotiations may continue with Canada possibly looking to offer concessions. Beyond the Canada news, trade developments appear mostly constructive as the July 9 deadline for reciprocal tariffs approaches. While the expiration of the 90-day tariff pause had been viewed as a potential source of market volatility, the White House has downplayed the significance of this self-imposed deadline—calling it “not critical” and signaling flexibility on timing. Moreover, both Washington and Beijing confirmed the terms of a new agreement that will accelerate rare-earth exports from China in exchange for the U.S. rolling back certain countermeasures. Additionally, U.S. Commerce Secretary Lutnick announced that 10 more trade deals are ready for finalization, though details remain limited. Separately, the U.S. will withdraw the proposed Section 899 “revenge tax” from its tax bill after securing G7 support to exempt American companies from certain foreign levies. The proposed tax, aimed at countries with “discriminatory” regimes, had raised concerns about deterring foreign investment. In our view, the upshot is that trade policy uncertainty has eased, allowing markets to focus on the still-resilient economic fundamentals.
   
• Slightly hotter inflation reading highlights Fed challenges - The Fed's preferred measure of inflation, the core PCE, increased 0.2% in May, slightly ahead of consensus expectations for 0.1%. On an annualized basis, core PCE increased 2.7%, from 2.6%*. Current inflation rates are the lowest in four years, but upside risks linger as tariffs could drive a likely temporary rise in the months ahead. Many companies have relied on pre-tariff inventory or absorbed cost increases to help avoid hurting demand. However, as inventories deplete and new goods arrive under the higher-tariff regime, price increases are likely, in our view. Several firms have already announced price hikes starting in June. This is a key reason why the Fed revised its 2025 inflation forecast upward last week, from 2.8% to 3.1%*. Even though prices for goods may increase, services inflation may remain stable, and the overall inflation bump could prove temporary. The Fed is on alert but expects core PCE to normalize in 2026. Next week, the focus will be on U.S. jobs. Payroll gains are expected to remain healthy, and the unemployment rate is expected to stay unchanged at 4.2%*.
   

Angelo Kourkafas, CFA
Investment Strategist

^*FactSet