Macro

UK:

After three months of increasing optimism, business confidence in the UK declined to its long-term average of 28% in May, according to a monthly sentiment index compiled by Lloyds Bank.

Companies surveyed by the Bank of England in May revealed their intentions to raise output prices and wages over the next year, although they anticipate a slower pace compared to the previous month. They plan to increase prices by 5.1%, down from 5.9% in April’s survey, while expected pay raises stood at 5.2%, slightly lower than the 5.4% recorded in the prior month.

EU:

In the eurozone, headline inflation decelerated to an annual rate of 6.1% in May from 7.0% in April, falling below the FactSet consensus estimate of 6.3%. The core inflation rate, which excludes volatile food and fuel prices, came in at 5.3%. Both figures showed improvements from the previous month and were below expectations.

European Central Bank (ECB) President Christine Lagarde reiterated in a speech that inflation remained elevated and would persist for a considerable period. She stated that the ECB had raised rates at its fastest pace ever and emphasized the need to bring interest rates to sufficiently restrictive levels. The minutes of the ECB’s May meeting indicated that most policymakers voted to slow the pace of rate increases to a quarter point but signaled a willingness to further tighten monetary policy.

A survey conducted by the European Commission revealed a more significant than expected weakening of economic sentiment, with the indicator dropping to 96.5 in May, reaching its lowest level since November 2022. The stagnating economy, high inflation, and rising interest rates weighed on morale. Sentiment deteriorated among manufacturers, service providers, retailers, and construction companies. However, consumers displayed slightly less pessimism, as households grew more positive about their financial situation.

US:

The agreement reached between the White House and Republican congressional leaders to raise the federal debt limit and prevent a default on government obligations seemed to have limited impact on sentiment, as indications of an imminent deal had already surfaced. The bill passed by the House of Representatives on Wednesday with a surprisingly large margin also had a limited impact on the markets. Following the Senate’s approval of the measure late Thursday, it was sent to President Joe Biden on Friday for his signature into law.

Investors redirected their attention to economic data, with stocks pulling back on Wednesday after news broke that job openings rebounded more than anticipated in April, reaching the highest level (10.1 million) since January. The data for March were also revised upward.

Friday’s highly anticipated nonfarm payrolls report surprised investors on the upside. Employers added 339,000 jobs in May, well above the consensus estimate of around 190,000. However, the unemployment rate, estimated through household surveys, also unexpectedly increased from 3.4% to 3.7%. The report suggested a potentially cooling labor market, as the number of job losses or completion of temporary jobs surged in May, reaching the highest level since February 2022. Meanwhile, the number of long-term unemployed individuals remained relatively stable.

Another positive sign for interest rates and investors was the release of the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index for May. As anticipated, the ISM’s index indicated the seventh consecutive monthly contraction in factory activity.