Market outlook for the week of 1st-5th June

The week begins with the release of manufacturing PMI data for the eurozone, the U.K., and the U.S. on Monday followed by the eurozone core CPI flash estimate y/y and the CPI estimate y/y the following day. Also on Tuesday, the U.S. will release its JOLTS job openings report. Wednesday will bring Australia’s GDP q/q data, along with services PMI releases for the eurozone, the U.K., and the U.S. In addition, the U.S. will publish the ADP non-farm employment change report. On Thursday, Switzerland will release its latest inflation data while on Friday, Canada will report its employment change and the unemployment rate. In the U.S., Friday’s key releases will be the average hourly earnings m/m, non-farm employment change, and the unemployment rate. Throughout the week, several FOMC members are expected to deliver remarks. In the U.S., the consensus for the ISM manufacturing PMI is 53.3, compared to the prior 52.7, while the ISM services PMI is expected at 53.8 vs. 53.6 previously. Both manufacturing and services activity are expected to remain in expansionary territory. On the manufacturing side, analysts note that business conditions appear to have improved somewhat since April, supporting forecasts for continued expansion. This view is also reflected in recent regional Federal Reserve surveys. While factory activity appears relatively stable, investors are likely to focus primarily on the prices paid component to assess whether the conflict involving Iran is beginning to translate into broader inflationary pressures. Input costs in the manufacturing sector have risen noticeably, although a similar acceleration in prices has not yet emerged across the services sector, Wells Fargo analysts noted. Despite the latest uncertainty and concerns about elevated costs, the services sector continues to show resilience. Current data suggests that demand remains relatively firm rather than showing signs of a significant slowdown. In the eurozone, the consensus for the core CPI flash estimate y/y is 2.4% vs. the prior 2.2%, while the CPI flash estimate y/y is expected to rise to 3.3% from 3.0%. Overall, eurozone inflation is expected to come in higher, although analysts note that the monthly pace of price growth is likely to slow considerably as energy-related gains lose momentum. This suggests that much of the increase in annual inflation reflects base effects rather than a renewed acceleration in underlying price pressures. The key focus will be on whether inflationary pressures are spreading beyond energy-related sectors. Although input costs have picked up again, there is currently little evidence that businesses are broadly passing those higher costs on to consumers. The ECB will closely monitor this week’s data ahead of its June meeting. While many analysts expect the Bank to deliver a rate hike, softer core inflation or a continued concentration of price pressures in energy-related components could support a more cautious, wait-and-see approach before tightening begins. In Australia, the consensus for GDP q/q is 0.5%, compared to the prior 0.8%. The impact of the conflict in the Middle East is expected to weigh on the country’s economic outlook, but will be only partially reflected in this quarter. Growth is projected to have slowed in Q1 as the economy lost some momentum, although Q2 data will likely provide a clearer picture of the extent of the slowdown. There is also a risk of a temporary contraction if the external headwinds intensify. Westpac analysts note that a key source of support for Q1 was a surge in data center investment. Capital spending in the sector increased sharply during the quarter and remains on an upward trajectory, helping to offset some of the broader economic pressures. Although part of this investment will be reflected in higher imports, it is still expected to provide a meaningful boost to domestic activity. In Canada, the consensus for employment change is 10.2K, compared to the prior -17.7K, while the unemployment rate is expected to remain unchanged at 6.9%. The Canadian economy started the year on the back foot, with Q1 growth flat and unemployment continuing to edge higher. Although there were significant job losses earlier this year, there are signs of resilience in the labour market, analysts from RBC note. Layoffs have been concentrated mainly in trade-exposed sectors, and overall firing activity has eased since late 2025. The rise in the unemployment rate may therefore reflect slower hiring and longer job searches, particularly among new labour market entrants, rather than widespread job cuts. Deputy BoC Governor Nicolas Vincent has described the labour market as “low hire, low fire,” highlighting particular strain among younger workers and those unemployed for longer periods. Hiring plans weakened after the conflict in the Middle East increased business uncertainty, but job postings data suggest some stabilization, with a rebound seen in May after earlier declines. The main wildcard ahead are energy prices: higher oil prices support income in producing regions but risk squeezing consumers and shifting business focus away from hiring. For now, spending trends have not shown significant demand weakness, so the base case still leans cautiously toward gradual labour market stabilization and a slow improvement in unemployment over the remainder of the year. In the U.S., the consensus for average hourly earnings m/m is 0.3%, compared to the prior 0.2%. Non-farm employment is expected to increase by 95K vs. 115K previously, while the unemployment rate is projected to remain unchanged at 4.3%. The U.S. labor market remains in a low-hiring, low-firing environment. Weekly jobless claims are still contained, and layoffs have been largely concentrated in the tech sector, while broader employment trends remain subdued. Hiring momentum has yet to recover meaningfully, as job postings and regional surveys remain broadly flat, and recent data suggests that demand for workers has not picked up again. Analysts at Wells Fargo forecast nonfarm payrolls to increase by around 105K in May. There has been some improvement in more cyclical parts of the economy since late last year, but this is likely to be offset by weakness in areas affected by recent corporate stress and sector-specific layoffs, including air travel with the Spirit Airlines bankruptcy and information technology. They expect the unemployment rate to edge up to 4.4%, reflecting soft hiring conditions, particularly for new entrants into the workforce. While part of the recent decline in labor force participation is structural, there are also signs of continued exits from the labor market. Even with a slight rise in unemployment, the broader picture remains one of stability, with the labor market neither clearly weakening nor regaining momentum.
This article was written by Gina Constantin at investinglive.com.

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