The week ahead: US Nonfarm Payrolls, UK PMIs and more

US Nonfarm Payrolls (Jun) – 03/07 – In recent weeks we’ve seen some early evidence of cracks in the US labour market as weekly jobless claims start to edge up from the levels we saw at the start of the year. In the last few weeks, the numbers have consistently been above 240k, the first time that has happened since August 2022. Continuing claims have also been edging higher, rising to 1.97m this week, and the highest level in over 3 years. It has been noticeable this year that hiring trends have started to slow, although not in a manner that suggests a crisis, at least not yet. Nonetheless hiring has slowed from the levels we saw from the same period a year ago, with May payrolls slowing to 139k, from 147k in April, while the unemployment rate came in at 4.2%. We did see modest slowdowns in manufacturing payrolls of -8k and government of -1k, while labour force participation also slowed to 62.4% from 62.6%. Vacancies also increased at the same time, rising to 7.4m. All in all, none of this speaks to a US economy that is struggling; however we have started to see differences opening up amongst some Fed officials when it comes to the timing of the next rate cut. The question is whether this is because of the pressure being exerted by President Trump on the Fed board to cut rates sharply. While Fed chair Powell has remained resolute in pushing back on Trump’s demands it does appear to be having an effect on the likes of Fed governors Waller and Bowman who have both suggested that July rate cut could be on the table. Waller’s comments came amidst concerns that hiring patterns have been slowing, and could also be a sign he is on manoeuvres for Powell’s job when his term expires next year. Both Waller and Bowman are both Trump appointees with Bowman also echoing the possibility of a July cut if inflation pressures remained muted which seems a remarkable about face from her previous hawkishness. A weak June payrolls report could reinforce the likelihood of a consensus split come July, with any number sub 100k adding to any potential dovish tilt. This remains an outlier view however with the consensus amongst previously dovish members like Chicago Fed President Austan Goolsbee remaining of the view that no cut is warranted for now, if remarks made this week are any guide, despite this week’s downward revision in US Q1 GDP to -0.5%.   

EU flash CPI (Jun) – 01/07 – Having seen the ECB cut rates again in June for the 8^th time in the last 12 months the question needs to be asked is whether rates are now as low as they can go. With inflation now below the central bank's 2% target rate at 1.9% it could be argued that the job is done. There are certainly some on the governing council who would agree with that sentiment, however the fact is that there are some who still hold out the prospect of further reductions. One of those is France’s Villeroy who was keen to not rule out the possibility which isn’t as surprising as it sounds when you look at how poorly the French economy has been doing. The recent rise in the euro has helped when it comes to bearing down on inflation and the fact it could go higher could act as a further headwind for price inflation, along with the slide in oil prices seen this year. Is the ECB done, probably in the short term, however if the euro were to head towards 1.2000, we could hear calls for a further 25bps cut in the deposit rate to 1.75%.

UK PMIs (Jun) – 01 and 03/07 – As we come to the end of Q2, how damaging has the recent budget been to UK economic activity, and the UK economy in general? While services have proved to be more resilient than anticipated, with the services sector seeing a pickup in output to 51.3 in the flash numbers, the manufacturing sector has continued to struggle, hobbled by higher wage costs on top of the highest energy costs in Europe. There was still a modest improvement to 47.7 in the recent flash numbers, as the quarter comes to an end. On a further positive note business said that cost pressures were starting to ease albeit from the sharp surge seen during April. In a more worrying sign, there was little evidence of an improvement in new work from abroad which decreased for the eighth month in a row. Higher staff costs have continued to act as a drag on recruitment with UK private sector employment declining for the ninth month in succession, and at a faster pace than in May. On current trends this is worrying and suggests that workforce numbers could well continue to decline as margin pressures and lower sales shrink profitability. On the plus side there does appear to be evidence that inflation could continue to slow in the coming months, however this could be due to increased economic uncertainty and the risk of higher unemployment levels dampening demand.   

J Sainsbury Q1 25 – 01/07 – One of the main takeaways from Tesco’s recent trading update was the resilience seen in its Q1 numbers, and what they told us about the UK economy. Not only did they increase their market share to 28% but they also saw a 5.1% increase in UK LFL sales with the food business contributing 5.9% to that total. The warmer weather clearly played a part in a strong quarter, with the main question being whether Tesco achieved its improvement in market share at the expense of its second biggest rival or whether at the expense of the likes of Asda which has continued to struggle or at the expense of Aldi and Lidl. Despite the strong quarter the reluctance to change guidance is perhaps a warning sign of challenges to come. When Sainsbury reported in April its guidance was also cautious despite a strong end to the year saying it expects to see underlying profits of £1bn, along with free cash flow of £500m. One trend that has been noticeable from recent retail sales numbers has been the tendency for people to spend more money on eating and drinking at home over the Easter and May bank holiday period, although the recent sharp rise in food prices may well act as a headwind in the coming months.  The recent Kantar numbers showed grocery sales rose 5% for the 12 weeks to June, although volumes were lower by 0.4%. Sainsbury, like Tesco, also managed to increase its market share, rising to 15.2%, which would suggest that we could see a similarly strong quarter for the UK’s second biggest supermarket, with the caveat that this could be as good as it gets for a while.

Currys FY 25 – 03/07 – The Curry’s share price has performed well so far year to date, helped in no small part by a guidance upgrade back in April which helped propel the shares to where they currently sit, up over 20% year to date. This update saw management state that they expected group adjusted profit before tax would be around £160m, up from the previous guidance of £145-155m. In May this was followed by a further update that stated that this figure is now expected to be around £162m, a 37% increase on the previous 12 months. Group like for like sales is expected to show an increase of 2%, with the UK and Ireland business showing a 4% improvement. Currys also said it expects to finish the year with net cash of more than £180m, and that this improvement would allow the resumption of dividends. This sector has managed to show some significant improvements in the last 6 months with AO World also putting in a strong performance in its most recent trading update. The challenge will be whether that can continue over the course of the next 12 months as cost pressures rise, and consumers start paring back spending on big ticket items of white and electrical goods.  

Constellation Brands Q1 26 – 01/07 – Back in April Constellation Brands hit the headlines after it was revealed that Berkshire Hathaway bought 5.62m shares in the owner of Corona and Modelo beers for the sum of $1.2bn. It would be nice to think that this would have offered the shares a decent move higher, however that optimism fell flat shortly after, with the shares sliding to a 5-year low in June, with concerns about tariffs no doubt helping to play a part, after the US announced a 25% tariff on all imported canned beer, as well as empty aluminium cans. Constellation imports all of its beer into the US from Mexico, and with no fall back position the company downgraded its outlook for 2026. For 2026 the company says it expects EPS of between $12.60 and $12.90 a share, and that net sales will range from between -2% and 1%, with beer sales expected to be flat to +3%. The company also lowered its medium-term outlook for 2027 and 2028.