Mike Dolan
London (Reuters) – What’s important in today’s US and global markets
Mike Dolan, Editor, Financial Industry, Financial Market
After the announcement of a temporary ceasefire in the Middle East, US oil, gold, Treasury yields and the dollar gave up all the profits registered since Israel’s first attack on Iran on June 13.
Throughout this episode, concerns about the energy market were never a real “shock” as oil movements were barely affected. And given the growing global supply and slowing global demand, the annual rise in US oil prices has not been positive at any point in the last 12 days.
We discuss all the market news today below, then move away from the headlines to explain how immigration and America’s grey are rushing to see how the US labor market is viewed.
Today’s market
*The dollar fell Tuesday as oil fell 4%, global stocks surged and US President Donald Trump said there was a ceasefire between Israel and Iran.
*However, Israeli Defense Minister Israel Katz said Tuesday that Iran ordered the troops to attack Tehran after launching missiles in violation of the ceasefire.
*The sharp reversal of the Israeli-Iran War premium of crude oil shows the power of several words from key players to move the market, but ROI columnist Clyde Russell suggests that the bigger issue here could be someone who is silent: Iran’s allies.
* Investors appear to be gradually reducing their exposure to dollar-controlled assets worldwide, bringing greenback to a low level in a few years. ROI Markets columnist Jamie McGeever explores where most of this sale comes from.
* Rapid growth in battery installations has deferred power systems across the US. ROI columnist Gavin Maguire outlines the major battery system trends he tracks.
Oil, fees and dollars fall
The Iranian token’s response to the US bombing nuclear facilities over the weekend was the launch of a well-integrated missile at a US base in Qatar. It was soon followed by President Donald Trump’s intention to escalate Tehran and his acceptance of a ceasefire call for Israel to say they would adhere to it.
It remains uncertain whether that ceasefire will be held, and some exchanges between Iran and Israel have been reported this morning, and the situation is still tense.
But ahead of Tuesday’s US Open, crude oil is just $66 per barrel, down $12 below Monday’s peak, rising slightly from its two-week low of $64.38 early in the session. In fact, oil is currently down nearly 18% from the previous year.
The S&P 500 rose 1% on Monday, with futures rising another 1% before the bell on Tuesday. VIX’s volatility gauge has returned to its location on June 12th, with people over 18 years old and gold prices also falling.
The dollar also slipped, with the euro returning to its 3-1/2 high whiskers, and the yen recovering all of its losses on Monday. Stocks in Europe and Asia also skyrocketed by more than 1%.
Wall Street is now paying attention to the Federal Reserve and has begun testimony for two days today for six months, as Fed Chairman Jerome Powell today states that some of his colleagues are significantly dovished with interest rate outlook.
Trump clearly believes the Fed should move quickly to cut rates by “two to three points.” The president covers Powell almost every day to not do so.
But Trump’s appointees to the Federal Reserve Committee, Michelle Bowman and Christopher Waller, now support easing faster than they later, opening a major divide between the central bank Hawks and pigeons. Last week, as many as seven policymakers predicted that they would not have any rate cuts in 2025.
But recently, Bowman, who was one of the most Hawkish members of the Fed’s Policymaking Council, electrified the toll market on Monday, saying it was time to consider easing soon next month.
“If inflationary pressures are curtailed, we will support the next meeting as soon as it drops to a neutral environment and maintains a healthy labor market,” he is currently awarded the vice-chairman of the supervisor.
While Tuesday’s parade of Fed speakers in Slate could pour some cold water on that view, many market players believe there is a joke for the positions being held at the central bank, and expects Trump will soon announce his pick to replace Powell when his term lasts for next year expires.
The Fed Futures Market is priced only about 20% of the time the potential for a July cut, but after Bowman’s comments and a retreat on oil prices, the full year easing bet has risen to nearly 60 bp.
The Treasury yields responded quickly to rate signals and energy easing.
The benchmark 10-year yield plunged below 4.3% for the first time in Monday’s six weeks, but again surpassed that level before today’s bell.
Elsewhere, Tesla’s shares jumped over 9% after the electric vehicle manufacturer began testing its much-anticipated Robotaxi services.
U.S. immigration halts could wipe out potential employment growth
If you’re wondering why so many US Federal Reserve officials are keeping Hawkish despite the slowing growth, consider how the dramatic decline in immigration and the greying of America is affecting the labour market picture that unfolds.
It is often overlooked in markets that focus on the latest news on the tariffs, geopolitics and energy markets, which are President Donald Trump’s signature policies.
The flow of migrant workers to the United States has effectively stopped over the past year. This pace had already slowed sharply before the election, but it is rooted in a near halt with the rise in deportations this year. Combine it with the steadily aging population of existing workers. And it appears that the crunch of labor could be on the horizon.
Tracking these trends, Barclays economists believe that the level of extra work that can be created without leading to “potential” non-farm private pay growth, or a shortage of workers, could drop below 10,000 per month from more than 100,000 people today by the end of next year.
They estimate that potential employment growth will fall to around 60,000 within the next six months, with potential economic growth slowing from over 2% this year to just 1.4-1.6%, year-on-year.
These numbers are fairly rare given that the average monthly private pay growth is around 172,000 over the past two years.
Meanwhile, Barclays said it hopes that the effects of population aging will be “intensified soon,” putting even more downward pressure on job growth.
Combining the impacts of the two forces “is attempting to create a significantly sustainable headwind of potential growth in labor and economic activity.”
The ingredients used to make predictions are calm.
Flatline salary possibilities
Over the past three years, the number of US immigrants has skyrocketed, adding 3-4 million numbers to the US population. Approximately 2 million new workers are four times the annual rate for the year before the pandemic. These were asylum seekers or “humanitarian” cases where people were primarily given temporary permission to live and work in the United States.
In fact, over the past two years, Barclays estimated that about three-quarters of the average monthly average private employment of around 180,000 people have been filled by migrant workers.
However, since last summer, the net influx of humanitarian immigrants has almost zero. And on top of that, Barclays Tracker estimated that current deportations would be carried out at around 10,000 a month.
On the other hand, US census forecasts predict that the population will decrease by about 50,000 in 2026 and 100,000 in 2027. Due to aging of the population, the workforce should be shrinking approximately 360,000 this year.
Of course, fine-tuning the underlying assumptions leads to a variety of outcomes, but the central conclusion of Barclays is that potential pay growth should be essentially flatline in the coming years, weighing the potential GDP growth.
Morgan Stanley also revised estimates for immigration near the suspension this year and next year, although it is expected to have a high 70,000 payroll “breakbens” in 2025 and 2026.
Feeding headache
For the Fed, the economic slowdown that has been exacerbated by the hit demand from trade war uncertainty could be a debate to ease policy now.
Trump clearly believes he should move quickly to cut his rates significantly, and his appointees are both Michelle Bowman and Christopher Waller who now support easing faster and faster.
But when workers shortages are a problem, it poses a very different problem for the Fed. In that scenario, the Fed’s full employment mandate is not at risk, but wage pressures could still exacerbate target price inflation.
With tariff hikes already clouding the period of inflation, it’s no surprise that seven Fed policymakers are hoping to stabilize central banks’ key borrowing rates for at least the rest of the year.
A blow to the workforce can slow growth despite low employment rates and boiling inflationary pressures.
If that happens, Fed inertia may be guaranteed.
The chart of the day
The oil market recorded relatively few signs during a two-week intense air battle between Israel and Iran, during a fierce aerial battle, including a bombing of US nuclear facilities this weekend. In the context of sharp oil price movements over the past 35 years, this episode has been minor so far, at least.
Events to watch today
*Current US Q1 account (8:30 EDT), April House prices (9:00 EDT), June consumer trust (10:00 EDT), Richmond Federal Reserve June Business Survey (10:00 EDT)
*Fed Chairman Jerome Powell will give a six-month monetary policy testimony before the House Financial Services Committee (9:00 EDT).
*New York President John Williams, Cleveland Fried Beth Hammack, Boston Industry President Susan Collins, Minneapolis Fried Neil Kashkari and Kansas City Fried Boss Jeff Schmidt all talk. European Central Bank Chairman Christine Lagarde, ECB Vice President Louis de Gindes and ECB Chief Economist Philip Lane speaks. Bank of England Governor Andrew Bailey, Lieutenant Governor Dave Ramsden and Beau policymaker Megan Green
*The US Treasury sells $69 billion in two-year bonds
*US company revenue: FedEx, Carnival
The opinions expressed are those of the author. They do not reflect the views of Reuters News. Reuters News is committed to integrity, independence and freedom from bias under the principle of trust.
(Edited by Mike Dolan and Anna Szymanski)
