BOnd Market Insights: Mon, 04 Aug 2025

The July U.S. employment report was dramatic. While headline jobs growth slowed, the revisions to May and June were the surprise. July payrolls rose +73k, well below consensus. The revisions subtracted a combined 258,000 jobs, the largest non-pandemic revision in history. Unemployment ticked up to 4.2%.

ISM Manufacturing PMI was disappointing, down for the 5^th consecutive month and has contracted for 31 out of the last 33 months. New Orders contracted for the  6^th straight month, while 25% of US manufacturers reduced their payrolls, the highest since 2020.

Fed officials remain divided on how to treat this. Dallas Fed’s Logan noted the ambiguity in how tariffs affect inflation expectations. The September Summary of Economic Projections (SEP) could reflect a more cautious stance, particularly if Powell reframes the inflation outlook to “tariff adjusted.”  Bostic, a dissenting voice, said that the job numbers were "significant", show economy may be weakening "more broadly". Treasury Secretary Bessent brushed it off, calling the labour mkt data unreliable; you can’t run an economy on broken data.

On a separate note, Fed Governor Adriana Kugler resigned effective August 8^th following her absence from the last FOMC meeting

Pricing for a September rate cut jumped to 20bps, up from 10bps pre-NFP. Two cuts are now fully priced by December. 2yr Treasury yields dropped 28bps to 3.68%, 10’s are at 4 ¼%.

Following the release of the data Trump reportedly ordered the firing of BLS Commissioner Erika McEntarfer following the weak report. JPMorgan raised alarm over this, warning that it risks undermining the integrity of U.S. economic data and, by extension, the conduct of monetary policy and financial stability. They cautioned that while much of the recent focus has been on potential politicisation of the Federal Reserve, an equally troubling development is the threat to the objectivity of federal data collection itself.

Morgan Stanley notes the effective tariff rate in May was just 8.3%, below expectations. But they expect June and July data to show a catch-up, with pass-through into CPI likely over the next 3 to 5 months. Tariffs are expected to add up to 1% to consumer prices, before fading.

Eurozone CPI printed at 2.0% y/y, slightly above expectations, with core at 2.3%. The BoE meets Thursday, with expectations of a 25bps cut to 4.00% and a likely three-way split on the MPC vote, symptomatic of the wider fragmentation in central bank policy globally.

In oil, OPEC+ finalized its scheduled supply hike, but left 1.66mbpd offline with no clear plan. The IEA projects a Q4 surplus of 2mbpd, and Goldman sees Brent falling to $60/bbl without additional supply discipline. Saudi-Russian coordination is under strain, as Trump raises the spectre of secondary sanctions on Russian oil exports.

US Treasury supply comes back into focus as this week’s $125bn of couponed auctions includes new 3yr, 10yr and 30yr, starting tomorrow. Overall, after a bit of volatility, the curve shape remains fairly steady with 2-10s at 53bps  and 5-30s at 106bps.