Views on the News

What you’ll learn:

• US jobs growth beats forecasts
  
• Eurozone cuts interest rate for first time in 5 years.
  

Headline 1: US jobs growth beats forecasts

The US economy generated more than 270,000 jobs and delivered strong growth in wages in May in numbers that are likely to push back hopes of an interest rate cut this year.

The unemployment rate rose slightly from 3.9% to 4%, the highest level in more than two years.

The figures underline the resilience of the country’s labour market, which has resisted the impact of aggressive interest rate rises since 2022.¹

Will Hobbs, Head of Multi-Asset Wealth: Friday’s US employment data could not be said to speak with one mind. The household survey registered a worrying rise in unemployment for younger cohorts. Meanwhile, the payrolls report showed continued strong growth in jobs and wage growth. The disagreement between the two surveys is not unusual. Most of the time, it is the household survey that does more of the correcting. Looking holistically, beyond employment, the US economy remains in good shape by the looks of incoming data.

Headline 2: Eurozone cuts interest rate for first time in 5 years

The EU has become the second major global economy to cut its lending rate, saying it had made progress in tackling inflation.

The European Central Bank (ECB) announced a cut in its main interest rate from an all-time high of 4% to 3.75%.

Christine Lagarde, President of the ECB, said the outlook for inflation had improved "markedly", paving the way for the rate cut. However, she warned that inflation was likely to remain above the bank’s 2% target “well into next year”, averaging 2.5% in 2024 and 2.2% in 2025.²

Will Hobbs, Head of Multi-Asset Wealth: One of the main things here is that, unlike the Bank of England and the Federal Reserve, the ECB effectively committed to a June policy rate cut in advance. After it had done so, inflation news surprised a little on the wrong side across much of the world. So, the ECB did end up cutting as promised, but did so with a slightly unusual accompanying press conference where President Lagarde was careful not to commit further.

Cyclical life is looking up a bit in Europe though, you are seeing that in the PMIs and indeed some wider indicators. Yes, wages are likely still running a bit too hot for comfort in the region, but there is a good degree of concentration around German public sector pay deals. For the rest, there does seem to be progress and as many General Council members have pointed out, their inflation forecasts for the end of 2025 have remained very stable.