Daily Commentary
Commentary prepared by Alloya Investment Services, a division of the wholly owned CUSO of Alloya Corporate Federal Credit Union. Alloya Investment Services is a leading broker/dealer consultant to credit unions.
Thursday, July 3, 2025 at 8:00 am CT
Commentary prepared by Tom Slefinger, Market Strategist
Market Indications
Other Market Indicators
| Market Indicators | ||
|---|---|---|
| 2s/5s Tsy Spread | 0.08 | 0.00 |
| 2s/10s Tsy Spread | 0.50 | +0.01 |
| 2s/30s Tsy Spread | 1.03 | +0.01 |
| DJIA-30 | 44,484.42 | -10.52 |
| S&P-500 | 6,227.42 | +29.41 |
| NASDAQ | 20,393.13 | +190.24 |
| Dollar Idx | 96.18 | +0.04 |
| CRB Idx | 300.71 | +4.66 |
| Gold | 3,347.76 | -9.39 |
Daily Commentary
Recap – The Big, Beautiful Bill narrowly made it through the House (with one procedural hurdle to clear), but the market reaction thus far has been muted. The fiscal hawks have been scared off. The razor-thin vote and a 60% public disapproval rating on the bill shows that there is no broad support for this budget-buster of a bill.
Meanwhile equity futures are in the green as the sentiment-driven equity market rally continues unabated. It sure feels as if investors are beginning to believe that the public badgering on Federal Reserve Chair Jerome Powell from the Oval Office is going to work and that a string of rate cuts is forthcoming.
Elsewhere Treasuries are being bid with the 10-year benchmark at 4.26%. The long bond is 4.789%. The DXY dollar index is steady at the bottom of the range at 96.8, while spot gold and Bitcoin are both little changed.
In front of today’s non-farm payroll report, yesterday Microsoft announced an additional -9,000 job cuts in its latest round of layoffs, which have totaled -15,000 in the past two months (about 4% of its global workforce). Have a read of “CEOs Start Saying the Quiet Part Out Loud: AI Will Wipe Out Jobs” in today’s Wall Street Journal.
I find it quite telling that companies involved in the development of this technological breakthrough are also laying people off. I mean, here is a company with a $3.65-trillion market cap and whose share price is up nearly +17% so far this year, and it is embarking on a significant job-cut program.
More importantly what does that mean for everyone else? Well, here is what Ford’s Chief Executive Officer, Jim Farley, said in a recent interview. “Artificial intelligence is going to replace literally half of all white-collar workers in the U.S…. AI will leave a lot of white-collar people behind.”
While not cheery news for the worker bees, A.I. is yet another reason why I continue to believe in the secular disinflation call and lower interest rates across the curve.
Another reason I remain bullish on Treasuries is because growth is slowing more rapidly than appreciated. To wit: real gross domestic product (GDP) has declined modestly by -0.7% annualized over the past six months ending in May. The three-month trend is -0.1% at an annual pace. Likewise, the year-over-year trend in nominal GDP, which was +5.7% a year ago, has wound down to +3.5%. That is the weakest since February 2021, when the 10-year Treasury yield was sitting near 1.0%. Historically, the 10-year Treasury yield lines up with the growth in nominal GDP, so it “should be” 3.5% right now – and only isn’t because of where the Fed is pinning the cost of carry.
All eyes will be on today’s non-farm payroll report for June. Nearly two-thirds of the payroll gains over the past year have not come from the survey itself but the guesswork involved in the Birth-Death model that attempts to capture employment generated by new net business creation. The problem I have is that the Fed and the markets have both been duped by this skullduggery. In fact, the total number of business insolvencies is up nearly +20% year-over-year and at the third-highest level in the past eight years. New business formation, meanwhile, is lower today than it was four years ago.
Yet, the Bureau of Labor Statistics (BLS) has been telling us that 1.1 million net new jobs in the past year came from the Birth-Death model! Of the 1.7 million alleged nonfarm payrolls that were created over the past twelve months, 1.1 million came from this source! That means that the employment gain has actually just been an average of +50,000 per month, not +140,000 as has been reported. Lies, damned lies and statistics, goes the oft-used refrain by Mark Twain.
Yet investors are sure to trade off a number this morning that has such a low level of reliability, which is a scary thought. What was once a gilt-edged piece of economic data is replete with unprecedented sampling errors. Keep in mind one other thing: the impact that immigration outflows are going to exert.
As for this morning’s number, the consensus is +106,000 on the headline number (see what happens to the likely revision to the +139,000 print for May); 4.3% on the unemployment rate (from 4.2% in May); and +0.3% month-over-month for the average hourly earnings figure.
Wishing everyone a Happy 4th!
Stay tuned and have a great day!
Economic Calendar
June 30 - July 4, 2025: The Week Ahead
Future Fed Expectations
Source: Bloomberg
| Select Probabilities based on the Futures | |
|---|---|
| Probability of Fed Funds rate CUT on July 30, 2025 | -21% |
| Probability of Fed Funds rate CUT on September 17, 2025 | -92% |
**All quoted rates are indications and are subject to change without notice.
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