Macroeconomic events
In the US, nonfarm payrolls rose by 139,000 in May, beating expectations. The unemployment rate held at 4.2%, and average hourly earnings increased by 0.4% month-on-month and 3.9% year-on-year, both above estimates. The Federal Reserve kept rates unchanged at 4.25%-4.5% at its June meeting. Its dot plot still indicates two cuts in 2025, though fewer cuts are now expected in subsequent years. Fed Chair Jerome Powell emphasized that policymakers are “well positioned to wait” and acknowledged the early effects of tariffs on inflation. He warned that further price increases may filter through in the months ahead.
May CPI inflation was 2.4%, up slightly from April and in line with forecasts. Core CPI came in at 2.8%, below expectations. Weakness in energy and vehicle prices offset some upward pressure from shelter and food. Powell later reiterated in congressional testimony that it remains too early to consider cuts, citing persistent inflation uncertainty from tariffs.
In Europe, euro area inflation fell to 1.9% in May from 2.2% in April. Inflation declined in Germany (2.1%), France (0.6%), and Spain (2.0%). Cyprus posted the lowest reading at 0.4%. The ECB cut rates by 25bps in early June, bringing the deposit rate to 2.00%, and revised its 2025 inflation forecast down to 2.0%. The ECB noted that trade uncertainty may weigh on exports but expects government investment to support growth. Analysts are divided on the path forward, with some expecting a pause and others calling for further cuts.
Geopolitical events
Geopolitical tensions eased after a US-brokered ceasefire between Israel and Iran, which followed strikes on Iranian nuclear facilities and retaliatory missile exchanges. Although the ceasefire appears fragile, markets welcomed the news.
Market Trends
The S&P 500 rose 3.5% over the past six weeks and sits just below its all-time high. European indices were more mixed, with Germany’s DAX flat and France’s CAC down 3.3%. US 10-year yields fell to 4.30%, while German 10-year yields dropped to 2.54%, reflecting easing inflation and dovish central banks. Gold gained 2.5% to $3,340 after hitting a record high in mid-June.
Currency Trends
The dollar weakened across major pairs. The euro rose 3.6% to $1.160, while sterling gained 2.4% to $1.361. The dollar also declined against the yen and Canadian dollar.
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