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Jobs data and the implications on rate cuts from the Federal Reserve were a key focus for the week. On Tuesday the job openings report for April came in softer-than-expected, falling to the lowest level in over two years. This also followed on from ISM’s gauge of manufacturing activity sliding further into contraction, reinforcing expectations for a Fed rate cut. Stocks however sold off on Friday following the release of the non-farm payrolls data, whereby a higher-than-expected 272,000 jobs were added last month, with average hourly earnings also topping forecasts. Even with a slight uptick in unemployment, the report prompted traders to reassess rate moves, now pricing in around a 50% chance of a cut at the September meeting.

Despite losses seen on Friday, the major large cap US indices notched weekly gains. The S&P 500 rose 1.3% having touched fresh highs earlier, the Nasdaq Composite was up 2.4% and the Dow Jones Industrial Average added 0.3%. Growth stocks led the way, with Nvidia notably overtaking Apple as the second most valuable company during the week. Meanwhile meme stocks such as AMC still saw tumultuous performance. In contrast small caps lagged for the week. Treasury yields jumped following Friday’s jobs report however for the week they ended lower, with the 10-year Treasury yield closing at 4.434%.

European markets also had a negative Friday over Fed rate uncertainty, however early gains meant that they were able to record their first weekly advance following two down weeks. The pan-European STOXX 600 advanced 1% overall, with most regional indices seeing slight gains, the UK market an exception. Earlier in the week, the Bank of Canada cut interest rates and on Thursday the European Central Bank (ECB) became the next major bank to cut rates. The ECB reduced its deposit rate by 25bps as expected although did not deliver any guidance on future cuts, somewhat to the disappointment of markets.

Japan’s Nikkei 225 was up 0.5% for the week, with support seen from the services purchasing managers’ index for May. Attention will turn to this week’s Bank of Japan meeting and whether the central bank will taper its bond purchasing. The Hang Seng added 1.6% for the week, however bucking the wider trend on the mainland the Shanghai Composite lost 1.2%. China’s exports in May came in higher than expectations, rising 7.6%, however this was somewhat overshadowed by reports that a group of US lawmakers were pushing for a ban of imports from two Chinese battery makers.

It was a busy week for elections, prompting market gyrations. In Mexico, Claudia Sheinbaum from the ruling Morena party won the presidential election, as expected. However, markets were surprised by the margin of the win, with the party securing a qualified majority in the Lower House and close to that in the Senate, prompting concerns over the passing of constitutional reforms. For the week, Mexican equities were down nearly 4%. In India, the Nifty 50 index had touched a fresh high on Monday as exit polls forecast another election victory for Narendra Modi. However, the following session it dropped over 5% as the expected Modi landslide didn’t materialise, having to rely on alliance members to attain the necessary seats to form a coalition, but later managed to bounce back.

Weekly macro highlights

US non-farm payroll employment rises in May

US non-farm payroll employment rose by 272,000 in May, above the downwardly revised 165,000 increase in April and market expectations of 185,000. March’s data was revised down by 5,000 meaning that combined with the 10,000 downward revision to April’s data, employment in March and April combined was 15,000 lower than previously reported. Driving the job gains in May were respective increases of 68,000 and 43,000 in healthcare and government employment. The household survey data collected by the Bureau of Labor Statistics showed a 408,000 person decline in employed persons, in stark contrast to the 272,000 increase reported in the establishment survey. Of the 408,000 that were no longer employed in May, 157,000 became unemployed and 250,000 left the labour force. As a result, the unemployment rate rose by 0.1 percentage points in May to 4.0%. Average hourly earning for all employees on private non-farm payrolls rose by 0.4% to USD 34.91.

Bank of Canada cuts rates in June

The Bank of Canada (BoC) reduced its policy interest rate by 25 basis points to 4.75% at its Governing Council meeting on 05 June. The BoC noted that economic growth resumed in Q1 2024, with GDP expanding 1.7% quarter-on-quarter in annualised terms. Although this was below the 2.8% projected in the April Monetary Policy Report, it represented an increase relative to the 0.1% expansion in Q4 2023. Trimmed CPI inflation, the BoC’s preferred measure of core inflation, fell to 2.9% year-on-year in April, having peaked at 5.7% in June 2022. This marked the first month since June 2021 that core inflation was inside the 1-3% band within which the BoC targets inflation. While the Governing Council noted that shelter price inflation remains high, it also highlighted that underlying inflation is easing and so monetary policy no longer needs to be as restrictive. Markets currently anticipate two more rate cuts in 2024.

European Central Bank cuts rates in June

The European Central Bank (ECB) reduced its key policy interest rates by 25 basis points at its Governing Council meeting on 06 June, with the refinancing rate and deposit rate declining to 4.25% and 3.75% respectively. In its post-decision press release, the ECB highlighted that the interest rate cuts were based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. The ECB noted its monetary policy has kept financing conditions restrictive and that by “dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down”. Despite this, ECB staff now see core inflation averaging 2.8% and 2.2% respectively in 2024 and 2025. This is above the 2.6% and 2.1% projected in March. In the post-meeting press conference, President Lagarde highlighted that the future path of interest rates will be data dependent.