Treasury yields rose sharply on strong payrolls; equities rallied broadly; oil and gold gained; the dollar weakened; Bitcoin held above $100,000 amid policy uncertainty.

Treasury yields surged on Friday after stronger-than-expected payroll data, capping a week of broad-based increases across the curve. The sharpest moves occurred in the intermediate tenors, while the long end also rose, though with relatively better performance. Once again, the U.S. economy has proven more resilient than anticipated, echoing the post-SVB collapse in 2023 when recession fears were widespread but ultimately unfounded. The 10-year yield climbed sharply as the labour market data undermined recessionary expectations. In a notable move, the U.S. Treasury conducted a $10 billion debt repurchase on Tuesday—the largest since the inception of its buyback program—underscoring a new level of intervention in the bond market.

Equities advanced broadly over the week. Large-cap stocks gained 1.50%, while small- and micro-cap names outperformed with gains of 3.35% and 4.85%, respectively. The "Magnificent 7" posted a modest increase of 0.67%. Tesla shares dropped more than 16% amid a public dispute involving former President Trump on platform X, ending the week down 14%. Sector performance was mixed, with consumer staples, utilities, and consumer discretionary stocks declining, while other sectors advanced. Technology led the gains with a rise of over 3%.

In currency and commodity markets, the U.S. dollar declined 0.40% against the euro, closing at its lowest weekly level since July 2023. WTI crude oil rose 6.55%, logging its first weekly gain in three weeks, supported by positive U.S. jobs data and renewed U.S.-China trade discussions, which lifted growth expectations. Gold gained 0.54%, continuing its upward trajectory as a safe-haven asset. Bitcoin remained stable above $100,000, holding firm despite continued uncertainty over U.S. trade policy following a recent appeals court decision.

May’s US job growth was modest and sector-specific, with rising underemployment and contracting services and manufacturing signalling slower economic growth ahead.

The US labour market showed modest job growth with 139,000 nonfarm payrolls added, mainly in education, healthcare, and leisure sectors, while manufacturing, retail, and government jobs declined. Full-time employment fell sharply, and involuntary part-time work rose to its highest level since 2019, signalling underutilization and rising risks of slower job growth amid trade uncertainties and cautious hiring. Concurrently, both the services and manufacturing sectors contracted, with the ISM Services Index dropping below 50 for the first time since mid-2023 due to weak new orders and backlogs, while manufacturing faced its third straight month of contraction driven by tariff volatility, supply chain disruptions, and elevated costs. These combined factors point to slowing economic growth, increased business caution, and mounting challenges for employment in the months ahead.

May’s US jobs growth was solid but concentrated in few sectors, with rising underemployment and trade uncertainty raising risks of weaker job growth ahead.

The US labour market delivered a respectable but cautious performance, with nonfarm payrolls rising by 139,000—above the consensus of 126,000—while the unemployment rate held steady at 4.2%, and wage growth ticked up to 0.4% month-on-month (3.9% year-on-year). However, revisions to previous months' figures resulted in a net downward adjustment of 95,000 jobs, signalling underlying softness. Employment gains remain heavily concentrated in private education and healthcare services (+87,000) and leisure and hospitality (+48,000), with these sectors alongside government jobs accounting for 87% of net job creation since January 2023. Conversely, key traditional sectors such as manufacturing (-8,000), retail (-7,000), temporary help (-20,000), and federal government (-22,000, marking a fourth consecutive monthly decline) experienced losses, while industries like tech, business services, transport, construction, and financial services have contributed minimally. Notably, full-time jobs decreased by 623,000, while part-time employment rose by 33,000, and the number of Americans working part-time involuntarily—those who want full-time work but cannot find it—hit nearly 1.4 million, the highest level since April 2019, underscoring persistent labour market underutilization. Looking ahead, growing trade uncertainties and weakening consumer sentiment—reflected in steep drops in spending confidence—are prompting firms to adopt a more cautious hiring stance, particularly in discretionary sectors like leisure and hospitality. Policy risks also loom, including potential cuts in private healthcare employment driven by political pressures to reduce health program spending, and continued federal government job declines linked to spending restraint efforts. The Federal Reserve’s Beige Book corroborates this outlook, noting widespread hiring delays, reduced labour demand, and increased uncertainty. Inflation remains a significant concern, with persistent cost and price pressures, suggesting the Fed will likely maintain its current policy stance without rate changes until at least the fourth quarter. Taken together, while May’s employment data was solid on the surface, the confluence of sectoral weakness, rising underemployment, and external economic uncertainties skews risks toward slower or negative job growth in the coming months.

We expect US job growth to slow in coming months due to trade uncertainty, cautious hiring, rising underemployment, and potential declines in key sectors like government and healthcare.

U.S. services and manufacturing sectors both contracted in May, reflecting weak demand, trade-related disruptions, and rising costs, signalling slower economic growth ahead and mounting pressure on employment.

U.S. economic data is signalling increased caution, particularly with the ISM Services Index unexpectedly falling into contraction territory for the first time since June 2023. The index dropped to 49.9 in May, down from 51.6 in April and below the consensus forecast of 52.0. The most notable weakness was in new orders, which declined sharply to 46.4, while overall business activity stagnated at 50.0. The backlog of orders also dropped significantly to 43.4, indicating little support for future output, especially amid ongoing trade uncertainties. While the employment component edged up to 50.7 from 49.0, the reading suggests only marginal job gains. With both services and manufacturing surveys now pointing downward, the data raises the likelihood of a slowdown in GDP growth heading into the second half of 2025.

The manufacturing sector also continues to face headwinds, contracting for the third consecutive month in May. The ISM Manufacturing PMI dipped to 48.5 from 48.7, falling short of expectations. Persistent tariff volatility and supply chain disruptions have created uncertainty, with delivery times lengthening to their highest since 2022. Input prices remain elevated, and factories are increasingly passing these costs on to customers. Although a few industries reported growth, most experienced contraction, especially in transportation equipment and primary metals. Employment in manufacturing remained weak, rising only slightly to 46.8, while new orders showed limited improvement. Comments from ISM respondents point to a difficult operating environment, with businesses cutting headcounts and grappling with declining inventories, subdued demand, and rising financial stress across supply chains.

We expect continued softness in both services and manufacturing activity, with elevated costs, trade uncertainties, and weakening demand likely to weigh on growth and employment in the coming months.