This week is relatively light in terms of macro data. The dollar finished last week in a splash of green but still closed lower over the prior five days. The buying followed a solid US monthly jobs report, with firm employment growth and stable unemployment. But most economists reckon the risks are skewed toward more weakness in the coming months as trade uncertainty and concerns for consumer spending lead firms to become much more cautious on hiring. The weekly initial jobless claims may garner some attention on Thursday to see if the recent rise continues.
Most Fed officials appear more worried about inflation than growth right now, partly due to activity data not showing major damage despite everything that’s happened on tariffs. But money markets reduced their expectations of rate cuts for the year after NFP, with just a 17% chance of another reduction at the July FOMC meeting. This stood above 30% before the respectable jobs report. Certainly, stock markets did like the data with the S&P 500 finishing up 1.5% on the week, above 6,000 and getting ever closer, as we have expected, to the all-time top at 6,147.
It may be too early to firmly understand the tariff impact on CPI figures. Interestingly, we note before the Fed blackout that kicks in this week until the June 18 FOMC meeting, Fed Governor Waller said he sees trade levies causing a one-time price rise and believes the Fed should look through it, although this view is not widely shared on the Committee. We think this view could become more widespread, all things equal, similar to how the Fed viewed tariffs in Trump 1.0. Focus this week will be on the US-China trade talks, with a heavyweight party of US officials including Treasury Secretary Bessent meeting in London.
Finally, there could be more headlines around the extraordinary spat being played out by President Trump and Elon Musk – arguably the world’s most powerful man versus one of the world’s richest. Who wins? Does TACO (“Trump always chickens out”) come into play? Tesla lost $153bn of its market value on Thursday last week so seemingly Musk has more to lose. The implication for wider markets may be less significant, though double digit losses for a megacap dragged down the broader indices while Musk could muster support against the president’s tax bill, potentially adding to broader market uncertainty. Of course, another departure (Scott Bessent) from the White House would be a huge deal for investors.