US jobs report concludes an eventful week

In focus today

• In the US, the May Jobs Report is set to conclude an eventful week. We forecast nonfarm payrolls to increase by 130k, average hourly earnings rising at 0.3% m/m SA, and the unemployment rate to remain steady at 4.2%, aligning well with consensus.
• In the euro area, focus turns to the third estimate of the national accounts data for the euro area in Q1. The estimate will include details on how exports and private consumption fared in Q1 as well as the ECB's preferred wage measure, compensation per employee, which will be interesting to watch following the decline in negotiated wages in Q1.
• Also, in the euro area we receive the April retail sales data, which will be important to follow to see if the lower consumer confidence has translated into lower spending.

Economic and market news

What happened overnight

In geopolitics, Russia has launched a large-scale drone and missile attack on Ukraine, including residential areas in Kyiv. Earlier this week, President Putin warned of Kremlin's retaliatory actions against Kyiv in response to Ukrainian strikes on Russian air bases.

What happened since Wednesday:

In the global trade war, Presidents Trump and Xi Jinping have agreed to initiate a new round of trade talks between the US and China following a long-awaited phone call on Thursday. The conversation, primarily focused on trade, made progress on critical rare earth minerals, according to Trump. Both leaders have accepted invitations for presidential-level visits in the coming months. The call came ahead of Trump's meeting with German Chancellor Merz at the White House, where discussions on trade, defence commitments, and the Russia-Ukraine war set a positive tone for future US-German relations.

In the US, the ADP employment report came in weaker than expected with an increase of 37k private sector jobs (cons: 110, prior: 62). The Leisure & hospitality remained the most important driver of employment growth (+38k), consistent with trends seen in recent years. Meanwhile, the ISM services printed 49.9 (cons: 52.0, prior: 51.6), indicating contraction within the economy. The subcomponents painted a mixed picture as business activity and new orders weakened, while price pressures increased to 68.7 (prior: 65.1).

Jobless claims exceeded expectations, reaching 247k (cons: 235, prior: 240), indicating softening labour market conditions. Prior to the release, the May Challenger report showed a continued decline in layoff announcements of 94k, down from 105k in April and significantly lower than the DOGE-driven peak of 275k in March. This trend supports the notion that overall labour market conditions remain relatively steady, despite the ADP pointing towards a cooling in hiring.

In the euro area, the ECB cut its policy rates by 25bp, as widely expected bringing the deposit rate to 2.0%. The inflation forecast was revised downward, projecting 2.0% for this year and 1.6% for next year. While the announcement initially suggested potential for further rate cuts, ECB President Lagarde's remarks during the press conference were to the hawkish side, indicating the rate cutting cycle may be nearing its conclusion. Following today's hawkish communication, we have revised our forecast, removing the July cut and targeting a final cut in September with a terminal rate at 1.75% (prior: 1.50%). Read more in ECB review - In a good position, close to or at the end, 05 June.

Also in the euro area, the final services PMI for May was revised up to 49.7 compared to the flash release of 48.9 and 50.1 in April. The upward revision was due to France and Italy. The service sector was thus in contractionary territory in May but not as deeply as the flash print suggested. The PMI data for Q2 point to an economic stagnation in the euro area, following stronger than expected growth in Q1. 

In Sweden, services PMI increased to 50.8 in May (prior: 48.7), indicating a modest return to expansion. This is encouraging news, as the service sector has previously been weaker than manufacturing, staying below the 50-mark for two consecutive months.

Sweden inflation figures for May were also released and slightly lower than expected. CPI came in at 0.0% m/m and 0.2% y/y, while CPIF printed 0.1% m/m and 2.3% y/y, and CPIF excl. energy printed 0.2% m/m and 2.5% y/y, all below consensus. This prompted the money market to add to its easing bets for the June meeting, with pricing now at 18 bp (prior: 15). Although we agree that yesterday's outcome has increased the probability of a cut already at the June meeting, we still see August as the most probable option and see market pricing as slightly excessive. Details will be released next week.

In Canada, the Bank of Canada left policy rates unchanged. The press release presented a balanced view, highlighting persistent trade uncertainties.

In China, the Caixin PMI revealed stronger services growth in May inching higher to 51.1 (prior: 50.7), despite concerns over US tariffs. The index indicates expansion, with robust new orders, although export orders faced headwinds. Positive sentiment persists, with companies increasing hiring to meet rising demand, while maintaining an optimistic outlook for the year ahead.

Equities: Equities ended the day lower yesterday, with losses led by the U.S., while European indices managed to stay in positive territory. Once again, despite a session packed with meaningful macro releases and central bank decisions, market attention was hijacked by a rather extraordinary public exchange between the President of the world's largest economy and the CEO of one of its largest corporations - mostly playing out on social media. If in doubt, just look at the performance dispersion among individual stocks - the impact is hard to miss. Defensive stocks generally outperformed cyclicals, which can be viewed through the lens of a multi-factor environment. Notably, despite a small uptick in the VIX yesterday, it remains below levels seen on April 1st - and at around 18.5 this morning, we still view sub-20 volatility as surprisingly low given the multitude of uncertainties globally. In the US yesterday, Dow -0.3%, S&P 500 -0.5%, Nasdaq -0.8% and Russell 2000 -0.1%. Developments in Asia remain mixed overnight, while European equity futures point slightly lower and U.S. futures marginally higher this morning.

FI & FX: In a choppy day for risk appetite - and by extension currency markets - the ECB decision to cut policy rates by 25bp took centre stage. While the decision was well anticipated the fairly hawkish Lagarde rhetoric at the press conference temporarily sent EUR/USD close to 1.15 before the cross erased most of its gains during the US session. The NOK enjoyed higher oil prices while the SEK largely disregarded lower-than-consensus Swedish CPI in the morning. Global yields ended the session higher with a slight continued flattening pressure from recent sessions extending. The anticipated 1:1 Danish rate cut from Danmarks Nationalbank had no impact on EUR/DKK.