ORLANDO, Florida, June 10 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

I'm excited to announce that I'm now part of Reuters Open

Interest (ROI), an essential new source for data-driven, expert

commentary on market and economic trends. You can find ROI on

the Reuters website, and you can follow us on LinkedIn and X.

Global markets remain buoyant, awaiting the outcome of

U.S.-China trade talks in London and U.S. inflation figures on

Wednesday, both of which could have a bearing on guidance from

the Federal Reserve next week and investor sentiment more

broadly.

In my column today I look at how the Trump administration's

crackdown on immigration could cause labor market distortions

and headaches for Fed officials. More on that below, but first,

a roundup of the main market moves.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. OpenAI taps Google in unprecedented cloud deal

despite

AI rivalry, sources say

2. Investment glass seems half full near mid-point

of 2025:

Mike Dolan

3. China's rare-earth lever is best used carefully

4. European defence supercycle means scrapping

deficit

fears

5. The EU can play it cool with Trump's trade

threats

Today's Key Market Moves

* World stocks hit record peaks for a fifth day, and on Wall

Street the S&P 500 and Nasdaq rise closer to their recent highs.

Benchmark U.S. indices gain as much as 0.6%.

* Intel shares leap almost 8%, the biggest advancer on the

S&P

500, while energy (+1.8%) and consumer cyclicals (+1.3%) are the

best-performing sectors.

* Sterling is among the biggest decliners in G10 FX,

falling 0.4% against the dollar and euro after unexpectedly weak

UK labor market data.

* Colombia's peso is the biggest mover in global FX, sliding

1.5%

following attempted assassination on Sunday of Senator Miguel

Uribe, a potential presidential candidate. The government also

temporarily suspends fiscal rules on Tuesday.

* U.S. bond yields slip, no more than 2 bps. Dealers digest

3-year

auction, Bloomberg reports that Treasury Secretary Scott Bessent

could be a contender to replace Powell at the Fed. All eyes now

on Wednesday's CPI data.

Buoyancy trumping uncertainty

On the day The World Bank slashed global growth forecasts,

warning of the "significant headwind" from tariffs and

heightened uncertainty, global stocks clocked their fifth

consecutive all-time high.

Britain's benchmark FTSE 100 is a whisker from reaching new

peaks and Germany's DAX hit an all-time high last week, while on

Wall Street the Nasdaq and S&P 500 are within a couple of

percentage points of new record levels also.

Yet the reasons for equity investors to be fearful right now

are plentiful - worries over growth, inflation, tariffs,

long-term interest rates, U.S. debt and deficits, and the fact

that China, the world's second-largest economy, is still mired

in a low growth and deflationary funk.

Something not quite adding up, right?

Perhaps. On the other hand, the fiscal taps are being turned

on in China and Germany, British finance minister Rachel Reeves

outlines her multi-year 2 trillion pounds ($2.7 trillion)

spending plan on Wednesday, and U.S. President Donald Trump's

'big beautiful bill' currently going through Congress is

front-loaded with fiscal stimulus too.

None of that is really fresh news but the upshot is a lot of

liquidity coursing through the global economy. Right now it is

something investors appear willing to accept even if the price

is increased debt, and for the U.S. and UK in particular, worse

public finances.

Big corporate deals are being struck, like the OpenAI and

Google cloud service tie-up and Meta Platforms reportedly paying

$15 billion for a 49% stake in AI startup Scale AI, and implied

equity and bond volatility is low. After a period of fretting

more about deficits and spiking bond yields, investors may now

be viewing the future with their glass half full.

Fiscal stimulus is coming and interest rates around the

world are being cut. The monetary outliers are Japan and the

U.S., but the Bank of Japan could be near the end of its

tightening cycle and the Fed may be about to begin easing later

this year.

On top of this, there's a general belief that Trump will

back down from his hardline stance on tariffs and that a

palatable deal with China will be reached, the so-called 'TACO'

- Trump Always Chickens Out - trade.

Fresh news on that front, at least, should be forthcoming on

Wednesday.

Trump immigration crackdown creates jobs distortions, Fed

headaches

Seismic shifts in immigration are distorting the U.S.

employment picture, making it harder for investors and

policymakers to know exactly how much the labor market is

actually slowing.

Assuming the Trump administration makes good on its pledge

to reduce immigration, either by stopping the flow of people

coming into the country or by deporting many already here, the

labor supply will shrink.

The long-term impact of lower immigration is generally

agreed to be negative, as new workers are needed to replace

retirees, fill job vacancies and drive economic growth. Over

time, fewer new workers will likely mean lower growth.

But in the short term, a smaller pool of workers results in

a tighter labor market, which keeps a lid on the unemployment

rate, albeit artificially and probably temporarily. This may

already be playing out.

Figures released last week showed that employment in May

fell by 696,000 jobs. That's the biggest single monthly decline

since the historic losses seen during the pandemic in early

2020. Some economists argue that the recent drop is a

consequence of Trump's immigration crackdown.

Nonfarm payrolls rose 139,000. Meanwhile, the unemployment

rate held steady at 4.2%, which though higher than it was two

years ago, is still historically low by any measure.

All else being equal, this points to a tight labor market,

which should put upward pressure on wages and perhaps even

warrant a more hawkish policy stance from the Federal Reserve.

But that is almost certainly a misreading.

When labor supply and the labor force participation rate

fall, this brings down a country's so-called 'breakeven' job

growth. That's the number of net new jobs the economy needs to

keep up with growth in the working-age population and maintain a

steady unemployment rate.

That figure is falling, and if the Trump administration

toughens up its anti-immigration policies further, this decline

is likely to accelerate.

LOWER FOR LONGER

According to economists at Morgan Stanley, breakeven

employment growth averaged 210,000 jobs a month last year, and

is averaging 170,000 so far this year. They reckon it will fall

to 90,000 by the end of this year and 80,000 next year.

Ryan Sweet, chief U.S. economist at Oxford Economics, goes

further, estimating that the breakeven rate is "quickly

approaching" 50,000 jobs a month due to weakening labor supply

growth, primarily because of reduced immigration.

"The unemployment rate can remain low, but for the wrong

reasons," Sweet says.

If these projections prove accurate, monthly employment and

job growth could continue to slow without raising the

unemployment rate. The contradictory signals this sends could

create confusion for both investors and policymakers.

In his press conference after the most recent Fed policy

meeting, Chair Jerome Powell repeatedly told reporters that the

labor market is "solid". The unemployment rate "remains low,"

and the labor market is "at or near maximum employment."

If these headline indicators are the gauge, Powell is

absolutely correct. But he also stressed that policymakers are

looking at the "whole huge array" of labor market indicators for

a truer guide.

One of those inputs in the months ahead will no doubt be net

immigration. And that could generate significant uncertainty, as

there are huge gray areas and wide margins of error when trying

to estimate net immigration and its impact on the labor market.

In January, the non-partisan Congressional Budget Office

projected net immigration of 2 million people this year and 1.5

million next year, down from an estimated 3.3 million in 2023.

With Trump seemingly hardening his stance on immigration, those

projections could turn out to be far too high.

Morgan Stanley's economists just slashed their immigration

forecasts to 800,000 this year and 500,000 next year. If these

figures turn out to be closer to reality, we could soon be

looking at a "tight" labor market with monthly payrolls gains of

well under 100,000. Pity the poor Fed Chair who has to

communicate policy in that environment.

What could move markets tomorrow?

* South Korea unemployment (May)

* Japan wholesale inflation (May)

* ECB officials speaking at various events, including: Board

members Claudia Buch and Philip Lane, and Governing Council

member Gabriel Makhlouf

* UK finance minister Rachel Reeves announces

multi-year

spending plan

* $39 billion U.S. 10-year Treasury note auction

* U.S. CPI inflation (May)

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.