Another Upside Surprise in US Payrolls

For the week ending 5 June 2026

As of midday Friday, global equities had eased from the record highs set earlier in the week amid profit-taking in the semiconductor sector. The yield on the US 10-year Treasury note rose 10 basis points on the week to 4.54% as strong payrolls increased the odds of a hike from the Fed by the end of the year. The price of a barrel of West Texas Intermediate crude oil rose $4 to $91.75, and volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 17.4 from 18.8.

MACRO NEWS

US nonfarm payrolls soared in May

The US economy added 172,000 new jobs in May, nearly doubling expectations, while revisions to the prior two months’ readings added an additional 93,000. Since the start of the war with Iran, US payrolls have averaged a monthly gain of 188,000 — an outcome few would have expected. The unemployment rate held steady in May at 4.3%, as did the labor force participation rate at 61.8%. On the back of these strong figures, markets have now fully priced in a quarter-point hike from the Fed by the end of the year.

US and Iran trade blows as stalemate persists

Progress toward a memorandum of understanding between the US and Iran has stalled amid tit-for-tat attacks among not only the two sides but also other countries bordering the Persian Gulf. The most consequential action of the week was an Iranian attack on the international airport in Kuwait; analysts interpreted this strike as an indirect warning to the United Arab Emirates, which has a substantial tourism economy. Israeli actions against Hezbollah in Lebanon have also become a larger sticking point in the ongoing talks, with US President Donald Trump reportedly pressuring Israeli Prime Minister Benjamin Netanyahu to halt further attacks. Israel and Lebanon reportedly agreed to a ceasefire on Thursday, but Hezbollah has since rejected the agreement. On Thursday, the International Atomic Energy Agency said that Iran is stonewalling inspections of its bombed nuclear sites and that inspectors are unable to confirm the state or location of Iran’s enriched uranium. The US naval blockade of the Strait of Hormuz caused Iran’s oil exports to tumble to just over 200,000 barrels per day in May from nearly 2 million in March.

QUICK HITS

Amid soft figures in other developed economies, the US posted solid PMIs in May. The manufacturing measure reached a four-year high while new orders readings firmed.

Former Federal Reserve Chair Jerome Powell warned Sunday that “if any administration finds a way to remove Fed officials over policy differences, then future administrations will do so as well.” Such actions would lead to the loss of the Fed’s credibility, he added.

The parade of megacap tech IPOs continues as Anthropic became the latest company to file a draft registration statement this week. Not to be outdone, Google parent Alphabet began the first leg of an $85 billion share sale on Thursday. Ahead of next Friday’s SpaceX IPO, S&P Global announced that it will not fast-track the inclusion of megacap IPOs in the S&P 500 Index, meaning these companies will have to wait at least a year before being added.

On Thursday, Anthropic called for the creation of an industry-wide mechanism to pause AI development to give society an opportunity to “deal with its immense implications.”

Bank of England Governor Andrew Bailey sees slower UK growth ahead but doesn’t expect a recession. The current inflation overshoot is entirely due to events in the Persian Gulf, he said.

Eurozone inflation accelerated to 3.2% May from 3% in April while the core rate rose to 2.5% from 2.2%. Those are the highest levels in nearly three years. Meanwhile, economic growth in the region slowed to 0.3% year over year in Q1 while contracting 0.2% quarter over quarter. Amid big swings in pharma exports to the US, a sharp drop in Irish GDP was the largest driver of the slowdown. Despite the deceleration, markets fully anticipate a quarter-point hike from the European Central Bank at its meeting next Thursday.

The April US JOLTS job openings rate rose to 4.6% from an upwardly revised 4.2%, while the number of openings jumped to 7.618 million from 6.887 million in March. The quits rate fell to 1.9% from 2%, and the layoffs rate declined to 1.1% from 1.2%. The report also showed that for the first time in nearly a year, job openings outnumbered job seekers.

According to a report from the ECB, gold has overtaken US Treasuries as the world’s most-held reserve asset. The ECB calculates that 27% of all global reserves are now held in bullion, up from 20% one year ago, while Treasuries’ share fell to 22% from 25% over the same period. The share of euro-denominated assets was unchanged at 15%.

This week, President Trump signed an executive order aimed at strengthening defenses against AI-enabled cyberattacks in coordination with artificial intelligence companies. Under the order, firms may voluntarily provide the US government with access to advanced AI models for testing up to 30 days before public release.

Analysts at Deutsche Bank note that there have only been four other occasions when the two-month gain for the S&P 500 has been as rapid as the one we’ve just experienced. Three of those were rebounds from recessions, but the other was in October 1987, shortly before the Black Monday crash.

Following an investigation by the Office of the US Trade Representative, they have recommended imposing a 10% tariff on 14 countries, including Canada, Mexico, the EU, the UK and Taiwan, and a 12.5% tariff on 46 others, covering essentially the entire universe of the US’ relevant trading partners. These levies will largely replace the since-invalidated IEEPA tariffs and are expected to come into effect in late July.

While declining to share details, Canadian cabinet minister Dominic LeBlanc said his country has made new and detailed trade proposals to the US based on negotiating progress in recent weeks.

On Wednesday, the OECD cut its global growth outlook, warning that the US–Iran war could worsen the economic picture if disruptions to energy markets and the Strait of Hormuz persist. Global growth is expected to slow to 2.8% in 2026, but in a prolonged-disruption scenario, it could slump as low as 2.1%.

In testimony on Capitol Hill, US Treasury Secretary Scott Bessent claimed that the Trump administration has eliminated 129 rules for each new one that it has imposed.

On Thursday, Ukrainian President Volodymyir Zelensky wrote an open letter to Russian President Vladimir Putin seeking peace talks.

Bank of Japan Governor Kazuo Ueda indicated this week that there is a good chance of an interest rate hike this month if the risk of hotter-than-expected inflation looks bigger than the potential hit to the economy from the Middle East crisis.

US Q1 nonfarm productivity was revised down to +0.3% from 0.8%, while unit labor costs were revised to 1.8% from a preliminary 2.3%.

THE WEEK AHEAD

Monday: Japan GDP

Tuesday: US trade balance, existing home sales

Wednesday: US CPI; Bank of Canada rate decision

Thursday: ECB rate decision; US CPI

Friday: Japan industrial production; UK industrial production; SpaceX IPO

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.