Last week’s US data ended on a generally reassuring note as the May monthly labor report showed a 139k increase in nonfarm payroll employment, near the pace of earlier months, and the unemployment rate held at 4.2%. But there were a few soft details in the household survey, and with some weakness in other labor reports we believe that the job market is gradually cooling. The report should reinforce the Fed’s bias to wait and see how trade policy and business uncertainty will affect inflation and growth, and we continue to look for the next rate cut in September, with the mid-June FOMC meeting a likely non-event. US business sentiment appears to have lost the positive momentum that had emerged following the US-China tariff truce in mid-May. The ISM Services Index fell below 50 for the first time since June 2024. We continue to believe that the employment situation might worsen by Aug/Sep NFP data to force Fed to cut rates by 50 bps in REMCY25. Recent QECW data also points to the fact that NFP nos are over stating actual employment gains. By that time Fed might have more clarity on tariff induced inflation & might consider them as one-off effect and focus on it’s employment mandate. In US macro data this week, market focus will be on May CPI & PPI. We expect the headline CPI MoM for May to come at .14% & the core CPI MoM for May to come at .24%. This implies a YoY CPI reading of 2.4% for May and a YoY core CPI reading of 2.7% for May. For PPI, we are expecting a 0.3% increase for May in core PPI. Such a gain would have the year-over-year rate rise two tenths to 3.0% for the core PPI. In UST auction supply, we have 58 BN USD of 3 year supply on Tuesday, 39 BN USD of 10 year supply on Wednesday & 22 BN USD of 30 year supply on Thursday. There is no Fed speak this week as Fed members are in a black out period before the FOMC meet on 17-18th June. The CBO released a new scoring of the House bill this week that is updated to include developments in the few days before its passage. With the update, the CBO estimates that the bill would boost primary deficits by $2.4trn, cumulatively, from 2025-34, relative to current law. On tariff front, last week's increase in sectoral tariffs on Steel & Aluminium to 50% from 25% earlier, implies a trade weighted average tariff of 14.4%, up by 0.5 bps. In RoW macro data, UK employment data on 10th June might be in focus. Also the UK spending review by Chancellor Reeves on 11th June might put more light on UK fiscal constraints. In Eurozone, ECB faced its first non-unanimous rate cut decision. It lowered the depo rate by 25bp to 2.00%, but Holzmann dissented. The ECB’s press conference (which was hawkish), and the new forecasts suggest a higher bar to back-to-back rate cuts. Hence, we have changed our ECB call and now expect rate cuts in September and December (vs. July and September before).
