FED: Bowman, Waller Cite Labor Concerns In Fed Dissents

The aforementioned focus on the future of the Chancellor is the likely source of pressure for gilts here, with the risk of a more left leaning Chancellor/adjustment to the fiscal rules heightening fiscal risks in an already fragile environment. 

• Futures through initial support at the 20-day EMA and last week’s lows, next support at the June 16 low (92.23). A break there would pose deeper threat to the bullish technical setup in gilts.
• Steepening extends aggressively, yields 5-14bp higher.
• GBP weaker in tandem.

The Challenger, Gray & Christmas job cuts report showed a relatively benign June after some strong increases earlier in the year. 

• Challenger job cut announcements amounted to 48k in June after 93.8k in May, for a -2% Y/Y decline after some elevated readings earlier this year that were driven by more than just direct DOGE effects.
• It follows a 47% Y/Y increase in May, 63% Y/Y in April and an average 90% Y/Y through Q1.
• Ex-government layoffs meanwhile were -8% Y/Y in June after 43% Y/Y in May, 58% in April and an average -1% Y/Y in Q1.
• From the press release: ““The bulk of companies cited economic conditions last month. We saw some DOGE activity and have tracked over 2,000 jobs directly attributed to tariffs this year, but for the most part it was a quiet June.”
• Consumer products saw the highest layoffs (9.5k) followed by services (4.5k). The latter is pulled back to somewhat more typical levels after an unusually high 22.5k in May (services includes “companies that service other companies such as commercial cleaning services and temporary staffing firms”).
• Retail, one of the areas most directly impacted by tariffs, still sees some large Y/Y increases even if the actual layoffs numbers are small: the 4.1k in June was a 85% Y/Y increase after 11.5k in May (184% Y/Y) and 7.2k in Apr (77% Y/Y).
• As for warehousing, one specific area watched for implications from inventory builds earlier in the year on tariff front-running, layoff announcements were tiny at 0.3k after 3.9k in May and a large 22k in April.
• By specific reason for the 744k of layoffs in the ytd, DOGE actions still top the list with 287k (plus 12k from downstream impact) followed by market & economic conditions at 154k (vs 131k in last month’s report) and closures at 107k (vs 94k last month). 

J.P.Morgan think that “the front end of the inflation curve continues to offer value, particularly with the fixings implying a more benign inflation trajectory than we forecast and the forward curve remaining steep”. 

• However, they have noted that they “no longer see risks to oil prices as skewed to the upside, with the ceasefire between Israel and Iran expected to be upheld, any near-term risk off moves could drag oil prices lower”.
• As a result, they recommend hedging an existing 5s30s breakeven curve flattener position with a short in Brent oil futures.