More US jobs data to fuel Fed hike speculation

In focus today and Friday

In the US, the May Challenger Report for layoff announcements is due. While AI-driven layoffs have increased so far in 2026, the overall number of cuts has remained modest in historical context.

In Sweden, May flash CPI will be published. Our forecast is that core inflation will be 0.22% y/y, CPIF 1.28% y/y and CPI 0.5% y/y. We do not yet expect any clear increase in underlying inflation as a result of the conflict in the Middle East. From 1 May, the tax on fuel was reduced by SEK 1, which is partly restraining the increase in energy prices.

In the US on Friday, the May Jobs Report is released in the afternoon. We forecast nonfarm payrolls at +110k, slightly above consensus, the unemployment rate at 4.2%, and average hourly earnings at 0.3% m/m. A solid report could tilt the Fed's balance of risks further towards a tightening bias.

In the euro area on Friday, focus turns to the third estimate of Q1 GDP, which will also include the ECB's preferred wage measure, compensation per employee. The first indicators for Q1 point to easing wage pressures, which is putting a downward pressure on services inflation amid the energy shock.

Economic and market news

What happened overnight

In Japan, Bank of Japan Governor Ueda signalled that "we must discuss the pros and cons of raising the policy rate if we judge that upside risks to prices outweigh downside risks to economic activity," effectively cementing market bets on a June rate hike. This marks a shift toward more conventional inflation-targeting with scope for more frequent and possibly faster rate increases.

In the US-Iran war, Israel and Lebanon agreed to implement a US-brokered ceasefire, contingent on Hezbollah halting all attacks and withdrawing from southern Lebanon. The deal follows an earlier failed April ceasefire and continued heavy fighting and displacement in Lebanon, leaving the truce fragile.

What happened yesterday

In the US, ADP's National Employment Report for May landed close to expectations at 122k (cons: 117k), but it was noteworthy how the jobs growth was very broad-based across sectors and firm sizes. Moreover, the ISM services index ticked higher to 54.5 (cons: 53.8, prior: 53.6), driven largely by accelerating growth in new orders. The prices subindex reached its highest level since August 2022, while higher oil prices add to the upside risks for inflation.

Against this backdrop, Fed member Lorie Logan noted she is increasingly concerned that higher interest rates could be necessary later this year, echoing recent similar language from other FOMC participants. We continue to expect Fed hikes in December and March and forecast EUR/USD trending lower towards 1.12 over the coming year.

In the euro area, the final May services PMI was revised significantly up to 47.7 from 46.4 in the flash estimate, lifting the composite PMI to 48.5 from 47.5. While still in contractionary territory and pointing to weak underlying activity, the outturn is less negative than suggested by the flash release. Yesterday we published an updated forecast for the euro area economy. We expect near-term stagnation with real GDP at 0.0% q/q in Q2 and 0.1% q/q in Q3 before a rebound from Q4 and have revised down our 2026 growth outlook to 0.7% y/y due to higher energy costs. Read more in Nordic Outlook - Ripple effects from the Strait, 3 June.

In Sweden, services PMI increased to 53.9 in May from 52.6, while the composite PMI rose to 54.9 from 53.9. New orders increased, and delivery times rose to 65.7. Longer delivery times contribute positively to the PMI as they normally tend to reflect strong demand. However, it is reasonable to assume that the current increase in delivery times is instead driven by supply chain disruptions. Prices increased to 80.1, which is historically very high and has been at a similar level only during 2021/2022.

In the oil market, US commercial crude stocks fell by 8 million barrels in the week ending 29 May to 433.7 million barrels (about 3% below the five‑year average), even though a further 8 million barrels were released from the Strategic Petroleum Reserve into the market. Taken together, this implies a roughly 16 million‑barrel weekly draw across commercial and strategic crude holdings - a very large draw that helps ease the supply disruption from the Middle East.

Equities: Equity markets fell yesterday, not because macro data disappointed, quite the opposite, but partly on negative news from the Middle East and a further rise in oil prices.

In our view, however, the pullback should be seen just as much in the context of the exceptionally strong rally over recent months. A modest setback does not change the underlying direction or the broader sentiment picture. When a rally has been so heavily led by tech and AI, a negative surprise from Broadcom will typically be enough to trigger some profit-taking. That looks more like a pause than a change in trend.

The fact that small caps outperformed large caps on a negative day is also telling. Right now, the market direction and the rotation beneath the surface remain heavily dependent on what happens in tech.

Most Asian markets are lower this morning, while European and US futures are also trading in negative territory. 

FI and FX: Energy prices rose yesterday amid renewed tensions in talks between US and Iran. The price increase pushed up rates and yields in both the US and the euro area with the 10Y US Treasury yield inching back towards 4.50%. The USD outperformed the rest of the G10 with EUR/USD falling to 1.16, USD/JPY rising to 160 and USD/SEK climbing above 9.40.