Highlights
U.S. equity markets ended the week lower, led by weakness in technology stocks. The Nasdaq Composite posted the largest decline, falling 4.53%, and the S&P 500, which recorded its first weekly loss since March, shedding 2.59% and ending a tremendous 9-week winning streak. The Dow Jones Industrial Average was the most resilient, slipping just 0.21%. Markets initially benefited from optimism surrounding artificial intelligence, but those gains faded as investors grappled with volatile oil prices linked to souring developments in the Middle East, lofty expectations for AI-related companies, an increasing number of AI-focused equity offerings, and stronger-than-expected employment data. While robust payroll growth reinforced confidence in the economy’s strength, it also fuelled concerns that inflation could remain persistent and keep the Federal Reserve’s monetary policy restrictive for longer. The week’s most significant economic release was the May nonfarm payrolls report, which surprised to the upside. The U.S. economy added 172,000 jobs, substantially above forecasts of roughly 80,000. In addition, April payroll growth was revised upward to 179,000 from 115,000. The unemployment rate remained unchanged at 4.3%. However, some indicators suggested underlying softness. Initial unemployment claims increased to 225,000, the highest level since early February, while announced layoffs rose for a third consecutive month. Further, economic data generally portrayed a resilient economy alongside ongoing price pressures. The Institute for Supply Management’s manufacturing PMI climbed to 54.0 in May, its highest level in four years and above expectations. Similarly, the Federal Reserve’s Beige Book indicated that economic activity increased in most regions of the country, while businesses continued to report moderate to strong price increases. Moving across the Atlantic, European markets were mixed as investors weighed progress in U.S.–Iran negotiations, reports of a potential Israel–Lebanon ceasefire, and plans by the Trump administration to impose new tariffs ranging from 10% to 12.5% on many countries. The pan-European STOXX 600 was lower by a a modest 0.11% while the Euro STOXX 50 closed 0.19% higher for the week. Economic data showed that the eurozone economy contracted by 0.2% in the first quarter, a downward revision from earlier estimates. Meanwhile, retail sales also weakened across the euro area, though France recorded a modest increase. In France, industrial production was broadly stable and the country’s trade deficit narrowed thanks to stronger exports. In the UK, new vehicle registrations rose to their highest May level since 2019, driven by strong demand for electric and plug-in hybrid vehicles, while sales of petrol and diesel cars continued to decline. Markets also digested political developments, where Andy Burnham announced plans to challenge Keir Starmer for the leadership, contingent on securing a parliamentary seat through the upcoming Makerfield by-election. In Asia, Japanese stocks delivered mixed performance, with the Nikkei 225 edging higher by 0.39% while the broader TOPIX slipped slightly. Investor sentiment remained cautious amid uncertainty surrounding the fragile ceasefire between the U.S. and Iran and the implications of higher energy prices for inflation and interest rates. Bank of Japan Governor Kazuo Ueda emphasized that policymakers should remain particularly vigilant regarding inflation risks stemming from supply disruptions linked to the Middle East conflict. Finally, Chinese equities moved lower as investors assessed signs of an uneven economic recovery. Mainland markets and Hong Kong stocks both declined, although gains among technology companies helped limit losses.
Data Highlights
USD Unemployment Rate (May) stayed the same at 4.3%, as expected. CAD Unemployment Rate (May) fell -30bps, from 6.9% to 6.6%, against a flat consensus of 6.9%. CHF GDP Growth Rate YoY (Q1) fell -80bps, from 1.1% to 0.3% against the expected -10bps drop to 1%. CHF Inflation Rate YoY (May) stayed the same at 0.6%, -20bps from the 0.8% expectation. CHF Unemployment Rate (May) stayed the same at 3%, consensus wrongly expected a -10bps drop to 2.9%. EUR Unemployment Rate (Apr) stayed the same at 6.3%, against the expected a -10bps drop to 6.2%. EUR Inflation Rate (Apr) rose +20bps, from 3% to 3.2%, as expected. EUR PPI YoY (Apr) rose +290bps, from 2% to 4.9%, +10bps from the softer 4.8% expectation. EUR GDP Growth Rate YoY (Q1) fell -90bps, from 1.2% to 0.3%, -40bps from the 0.8% expectation. AUD GDP Growth Rate YoY (Q1) stayed the same at 2.5%, versus an expected +20bps to 2.7%.
Week Ahead
JPY GDP Growth Annualized (Q1) – Monday | JPY PPI YoY (May), CNY PPI YoY (May), CNY Inflation Rate YoY (May), USD Inflation Rate YoY (May), USD Core Inflation Rate YoY (May), CAD BoC Interest Rate Decision – Wednesday | EUR ECB Interest Rate Decision, USD PPI YoY (May), USD Core PPI YoY (May) – Thursday | EUR Inflation Rate YoY (May), GBP GDP YoY (Apr) – Friday
