Markets Face Twin Tests: US Jobs Data and an Unsigned Iran Deal

Markets enter the new week balancing two major uncertainties: whether a proposed US-Iran ceasefire extension can evolve into a formal agreement, and whether incoming economic data will push the Federal Reserve closer toward another rate hike. Last week, investors aggressively embraced the peace trade. Oil prices collapsed, Treasury yields retreated, and equities surged as markets increasingly priced a normalization of energy flows through the Strait of Hormuz. Yet despite the optimism, the agreement at the center of that repricing still does not exist.

Over the weekend, fresh reports suggested negotiations remain difficult. US President Donald Trump reportedly requested additional changes to the proposed framework, particularly regarding the reopening of the Strait of Hormuz and the disposal of Iran’s highly enriched uranium stockpile. Iranian negotiators pushed back, insisting that Tehran would not accept any arrangement that failed to fully protect Iranian rights. A White House Situation Room meeting intended to make a final determination on the framework ended without a clear decision, reinforcing the impression that significant hurdles remain.

Trump’s own comments added another more uncertainty. While he said he believes a deal can eventually be reached, he also stressed that he is “in no hurry” and warned that military action remains an alternative if negotiations fail. That combination of patience and threat highlights the risk facing markets this week. Oil has already unwound a large portion of its geopolitical premium, with Brent falling from above 112 to below 90. The question now is whether diplomacy can catch up with market expectations.

The geopolitical backdrop arrives just as investors face one of the most important weeks for US macro data this year. Fed officials have shifted a more hawkish tone in recent weeks, but most have also emphasized that there is currently no need for an immediate rate hike. With Fed funds still sitting at 3.50%-3.75% under Chair Kevin Warsh, markets have already abandoned rate-cut expectations. The debate is now centered on whether the Fed simply holds rates higher for longer or eventually tightens again if inflation pressures persist.

That makes Friday’s Non-Farm Payrolls report the week’s defining event. A strong labor market would allow the Fed to keep focusing on inflation risks, particularly if wage growth remains elevated while oil-related cost pressures continue filtering through the economy. Treasury yields and Dollar pricing could become sensitive to any signs that labor demand remains too strong to comfortably return inflation toward target.

The market path last week was straightforward: lower oil, lower yields, stronger equities. This week could prove more complicated. If diplomacy stalls while economic data surprises to the upside, investors may need to reassess both the pace of disinflation and the assumption that the Middle East risk premium has already disappeared.

Data Calendar: Inflation, Jobs and Growth Take Center Stage

USD

The US calendar dominates the week. Monday’s ISM Manufacturing PMI will be watched closely for signals on industrial demand and, more importantly, the Prices Paid component, which could offer an early indication of whether raw material inflation is accelerating again.

Attention then shifts to Wednesday’s ADP Employment Change and ISM Services PMI. ADP serves as an imperfect but closely watched preview of Friday’s payrolls report, while the services survey will provide insight into how higher energy costs are affecting the largest part of the US economy. Markets will also focus on pricing components within the report given ongoing inflation concerns.

Friday’s Non-Farm Payrolls and unemployment rate release stands as the main event. Strong hiring and firm wage growth would reinforce the view that the Fed has room to remain restrictive and potentially consider tightening if inflation proves sticky. Weakening employment conditions, however, would reduce pressure on policymakers and likely support the recent decline in yields.

EUR

Euro traders face a critical inflation test on Tuesday. ECB officials have spent weeks preparing markets for a June rate hike, and May Flash CPI is expected to provide the final validation. Consensus forecasts point to inflation accelerating from 3.0% to 3.3%, which would reinforce the ECB’s concern that higher energy costs are feeding into broader price pressures.

AUD

Australia’s focus turns to Q1 GDP on Wednesday. Expectations for a June RBA pause are firmly established following softer than expected inflation data and weaker labor market readings. As a result, growth data now carries greater importance. A stronger GDP outcome could revive expectations for another rate hike later this year, likely in August, while weak growth would strengthen the argument that policy tightening is finally beginning to bite.

CAD

Canada’s labor market report arrives simultaneously with US payrolls on Friday, setting the stage for potentially sharp USD/CAD volatility. With the Bank of Canada’s June 10 meeting approaching, the employment data serves as the final major policy input. Markets broadly expect the BoC to remain on hold, meaning it would likely require a significant surprise in either employment or wages to materially alter policy expectations.

Economic Calendar Highlight: Week of June 1, 2026