Markets
US payrolls delivered. Net job growth topped all forecasts and beat consensus by a wide margin in May (172k vs 88k) and was accompanied by a combined positive 93k net revision to March & April numbers. That’s a 177k positive surprise. The 188k 3-month average points to the best momentum since March 2024 and suggests that the weak H2 2025 (“no hire, no fire”) is definitively behind us. Leisure and hospitality added 70k jobs, the most in more than three years and probably linked to the World Cup soccer which kicks off next week. The unemployment rate and labor force participation rate both stabilized, at 4.3% and 61.8% respectively. Average wage growth printed in line with consensus as well at 0.3% M/M and 3.4% Y/Y. US Treasuries sold off after the BLS report with the curve bear flattening. Daily changes range between +4 bps (30-yr) and +10 bps (2-yr). The US 2-yr yield tests the YTD high at 4.14%. The US 30-yr yield is back above 5% which makes for an interesting set-up going into next week’s mid-month refinancing operation (including 30-yr bond auction). On a weekly basis, the bear flattening is even more outspoken given strong ISM surveys, JOLTS and ADP reports earlier this week. US money markets currently fully discount a 25 bps Fed rate hike by the December policy meeting. At the end of last week, the market implied probability stood at 57% with a hike discounted by mid-2027. We’d err on the side of the repositioning to continue next week with May US inflation numbers expected to deliver the first 4%-outcome since April 2023. Underlying core CPI is on the verge of moving back above the 3%-threshold. Against the background of decent growth and a strengthening labour market, this could prompt more hawkish comments from the US central bank. Higher US yields boost the dollar. EUR/USD drops below the 1.16-handle and tests EUR/USD 1.1576 support, the final hurdle before a return towards the 1.14 area. USD/JPY changes hands at the psychological 160-mark and could be the driver of more USD gains if markets test Japanese officials readiness to walk their intervention talk. US equity markets already traded on the soft (correction) side with higher yields adding damage. Key gauges open up to 1% lower (Nasdaq).
The ECB is set to deliver its first rate hike since September 2023 next week. The eurozone economy shows resilience so far while inflationary pressures are broadening and risk unanchoring inflation expectations. April ECB Minutes showed that some ECB members back then wouldn’t have opposed a rate hike. In the meantime, support for some tightening grew with plenty ECB governors even saying that an interim US-Iran deal wouldn’t derail that decision. How things stand right now, the latter doesn’t seem to be in sight any time soon. We therefore err on the side of back-to-back ECB rate hikes as the energy supply shock persists and call for a measured adjustment of policy. A potential trigger to expect more ECB tightening could come from a new upleg in oil prices for example in case we move to a situation of physical shortages as reserves are depleted at stealth pace.
News & Views
Firms in the Bank of England’s May Decision Maker Panel survey said their realized own-price growth was 3.8% in the three months to May, up 0.1 ppt from the April edition. For the year ahead, firms said they expected their own prices to rise by 4%, or 0.2 ppt higher than previously. Year-ahead expectations for the broader CPI indicator increased to 3.7%, while the three-year gauge matched April’s 2.8%. The surveyed firms reported annual wage growth in the three months to May at 4.2%, down 0.1 ppt, and annual employment over the same period at -0.3%. Year-ahead measures for both came in at 3.4% (unchanged) and -0.3% respectively. The DMP since April is also polling the way firms expect the recent energy shock to affect their business over the next 12 months. Higher prices and lower profit margins continue to be the most common forms of adjustment in the May survey. 57% reported an expected price increase while 68% foresee shrinking profit margins.
Canadian payrolls in May crushed estimates with a net job growth of 87.8k vs 10k expected. It’s the largest single-month increase since December 2024. Employment rose most notably in construction (+27k), information, culture and recreation (+19k), transportation and warehousing (+19k) and accommodation and food services (+17k). Full-time jobs rose by 154k, compensating a 66k drop in part-time employment. The unemployment rate unexpectedly fell 0.3 ppts to 6.6% while the participation rate steadied at 65%. The employment rate rose for the first time since December 2025, adding 0.2 ppts to 60.7%. Despite the large uptick in employment, the hourly wage rate of permanent workers fell from 4.8% to 3.2%, the joint-slowest in more than four years. The Canadian dollar kept earlier gains against the strong American counterpart. USD/CAD hovers around 1.388. Money market bets for a rate hike by the Bank of Canada grew with a year-end move more than priced in.
 and was accompanied by a combined positive 93k net revision to March & April numbers. That’s a 177k positive surprise. The 188k 3-month average points to the best momentum since March 2024 and suggests that the weak H2 2025 (“no hire, no fire”) is definitively behind us.){kind=link}