An easing in tail risks is helping lift global markets this morning after the US House of Representatives passed a bill to raise the debt ceiling. The measure passed by a 314-117 margin late last night, with Democrats joining with centrist Republicans to push the bill forward for approval in the Senate. Although disappointing earnings estimates are weighing on several of the biggest tech names, equity futures are broadly higher, Treasuries are reversing yesterday’s rally, and the dollar is edging upward against most of its major counterparts.

The number of US employment vacancies jumped unexpectedly last month, further firming odds on a rate hike at the next Federal Reserve meeting. Yesterday’s Job Openings and Labor Turnover Survey showed a seasonally adjusted 10.1 million jobs available in April, up from a revised 9.7 million in March, and the first increase in three months. Pink slips fell to 1.6 million from 1.8 in the prior month, suggesting that the much-ballyhooed wave of tech sector layoffs is not spiralling out across the economy.

But several Fed officials later did their best to counter bets on a rate hike, pushing yields lower and derailing gains in the dollar. Philadelphia Fed President Patrick Harker adopted language initially used by Governor Waller last month, saying “I am definitely in the camp of thinking about skipping any increase at this meeting,” and future vice chair Philip Jefferson followed this by acknowledging that “skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming”. Jefferson warned markets not to extrapolate a pause forward, saying “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle”.

The Canadian dollar remains slightly stronger after yesterday’s faster-than-anticipated growth estimates helped lift expectations for a rate hike at next week’s Bank of Canada meeting. In our – admittedly low-conviction – view, officials will want to see more data before moving off the sidelines, but we also don’t think a rate hike can do much to lift the loonie. The Bank’s decisions over the last two years have had a “canary in a coal mine” effect on global rate expectations, and a Canadian hike is likely to lift market odds on a similar move from the Fed – something that would restrain any widening in rate differentials that otherwise might have occurred. We’re not sure when Canada became a fashion leader, but we plan to enjoy it while it lasts.

Inflation in the euro area tumbled by more than anticipated in May, lowering the likelihood that the European Central Bank follows its planned June rate hike with another in July or September. Accordingly to an update published by Eurostat this morning, consumer prices in the common currency bloc rose 6.1 percent in the year to May, down from 7 percent in April, and core inflation fell to 5.3 percent from 5.6. With energy prices broadly back to 2021 levels, global supply chain issues easing, and domestic demand weakening, markets and economists have long expected a sequential slowdown in the pace of price increases, but the faster-than-forecast move should give central bankers room to move onto a more data-dependent footing in the months ahead. The euro, which had fallen on earlier inflation surprises from France, Germany, and Spain, is clinging to the 1.07 threshold as we go to pixels, struggling to make headway against a resurgent dollar – even as it stands on a vastly stronger foundation relative to last year.

Today’s mid-tier data releases should keep currencies largely rangebound ahead of tomorrow’s all-important non-farm payrolls report. Initial claims for unemployment benefits, out at 8:30, are seen rising to 235,000 in the week ended May 27, up incrementally from 229,000 in the prior week, but a number that should leave expectations for a circa-175,000 payroll gain largely intact. At 10, the Institute for Supply Management is expected to report a modest softening in its manufacturing sector index. The Fed’s Patrick Harker will again talk monetary policy at 1, but we expect the message to remain unchanged relative to yesterday.