The US economy increased the number of jobs by 390k in May, the fresh NFP showed, better than average expectations (325k) but worse than April's figures (436k). Total employment is only at 822k highs before the pandemic hit, and the labor market is increasingly bottoming out. However, we point to a few spots that add to the arguments of those who see a reversal of the economic cycle. The annual rate of wage growth has slowed down from 5.5% to 5.2% against an inflation rate of 8.3%. In other words, wages are hardly fuelling inflation in recent weeks. Manufacturing, often the flagship of business cycles, added 18,000 jobs, three times weaker than in the previous two months, clearly losing momentum. The share of the economically active population rose to 62.3% as more people struggled to find work amid rising prices and depleted savings accumulated during the pandemic thanks to stimulus packages. This is not sound economic news, indicating a slowing economy. Initially, the markets may well be at the mercy of a sell-off in risky assets. But the more weak data we see, the more attention we should pay to FOMC members' comments, which could dampen the pace of rate hikes.

Summary May's downshift in hiring to its slowest pace in more than a year still leaves payrolls rising at a robust pace. Employers topped consensus expectations with 390K new jobs. The ongoing solid pace of hiring has been fueled not only by sky-high demand but by more workers returning to the labor force. The labor force participation rate rebounded a tick in May, helping to keep the unemployment rate steady at 3.6% and wages from accelerating further. Today's report lands in a sweet spot for the Fed. While the labor market remains clearly tight and is adding to inflationary pressures, improving labor supply is helping ease the upward pressure on wages while still allowing more workers to gain employment. But there is a long way to go before restoring the balance to the jobs market that will be needed for the Fed to win the battle on inflation, keeping the FOMC on track to tighten monetary policy aggressively at its next few meetings. Job growth mostly broad-based Nonfarm payrolls rose by 390K in May, down slightly from April's 436K pace. The ongoing employment recovery in leisure & hospitality continued with 84K net new jobs added in the month, led by restaurants & bars (+46K) and accommodation firms (+21K). Professional & business services and transportation & warehousing once again posted strong monthly gains of 75K and 47K, respectively. Manufacturing and construction employment also saw solid increases despite other recent data showing some tentative signs of cooling in these sectors. The retail sector was one of the lone disappointments. Retail employment declined 61K in May, which is consistent with weak earnings from some of the nation's largest retailers. We expect households to keep steadily shifting their consumption away from goods and toward services, and it would not surprise us if these shifting spending patterns are reflected in the employment reports over the next several months. In total, nonfarm employment is down by 822K, or 0.5%, from its pre-pandemic level. Three major sectors account for these missing jobs: leisure & hospitality (down 1.3M from February 2020), health care (down 223K) and state and local government (down 634K). Encouragingly, all three of these sectors saw solid job growth in May, including a 52K employment increase for state and local governments, the largest increase since June 2021. Download The Full Economic Indicator

As the Biden administration scrambles to try to contain inflation – or at least make a public relations show of it – precious metals investors are wondering how much longer gold and silver prices will remain contained. Metals markets got a bit of a lift this week through Thursday but have pulled back a bit here today. As of this Friday recording, gold is flat for the week now to trade at $1,860 per ounce. And silver is down 20 cents or 0.9% this week to trade at $22.12 an ounce.    Turning to the platinum group metals, platinum is this week’s standout performer with a robust 7.7% advance to come in at $1,039. And finally, palladium prices are down 1.9% to trade at $2,039 per ounce. While precious metals are showing some signs of emerging strength here, they remain depressed compared to other raw materials. Gasoline prices, for example, are setting record after record across the country. On Thursday, the national average hit $4.72 a gallon. In California, it’s now over $6.00. Consumers who are frustrated with skyrocketing costs for fuel, food, and other essentials are giving President Joe Biden poor marks for his handling of the economy. The White House is desperately trying to revive Biden’s tanking poll numbers ahead of the mid-term elections. And to do that, the President needs to appear to be tackling the inflation problem. On Tuesday, Biden convened a rare one-on-one meeting with the chairman of the Federal Reserve. Biden insisted he respects the Fed’s so-called independence.  But he was clearly leaning on Chairman Jerome Powell to do more to combat rising prices. Powell is in a tough spot. He oversaw a massive central bank stimulus intervention to help accommodate the Biden administration’s spending agenda. Now he’s being asked to withdraw some of that stimulus without crashing financial markets in the process. The administration now acts surprised that all the spending and borrowing it pushed forward helped create an inflation problem. Last year while Treasury Secretary Janet Yellen was promoting Biden’s “Build Back Better” agenda, she testified before Congress that the trillions in new spending wouldn’t contribute to inflation. Now she is being forced by inflation realities to backtrack. Yellen went on CNN this week and admitted that she got it wrong – very wrong. Financial Market Commentator:    (While) President Biden passes the buck on inflation, Secretary Yellen, issues a mea culpa. Treasury Secretary Janet Yellen: I was wrong then about, umm, the path that inflation, umm, would take. As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices. And, umm, supply bottlenecks that have affected our economy badly, that I didn't, at the time, didn't fully understand. Perhaps Yellen should have listened to former Treasury Secretary Larry Summers. A Democrat who served under Bill Clinton, Summers panned the Build Back Better agenda and warned that excessive fiscal stimulus would create the very inflation problem that we are now seeing play out. Of course, nobody has a crystal ball when it comes to the economy and markets. While some trends are largely predictable, others aren’t. Black swan events such as pandemics, wars, terrorist attacks, and flash crashes can devastate an investment portfolio that is highly concentrated in a particular asset class. That’s why broad diversification is key to navigating uncertain times. If there is one investment theme that is close to 100% certain to play out, it is that the U.S. dollars in which all investments are denominated will continue to depreciate. It is the nature of fiat currency regimes that they produce inflation. That is their very purpose.  Politicians and central bankers don’t want to be constrained by the strict limitations imposed by a hard money system. That is why they sneer at the suggestion that gold and silver could still function as money in a modern economy. Gold is antiquated, they say. But in reality, the fiat monetary regime is based on obsolete ideas that should have been relegated to the dustbin of history after the fall of the Soviet Union. The central planning mindset holds that purported experts need to be put in positions of power to do things like fix interest rates and intervene whenever markets or the economy get off track. But as we’ve seen, the central planners at the Treasury Department and Federal Reserve can’t even accurately predict the outcomes of their own actions. Public confidence in government and the Federal Reserve is plummeting when it comes to their handling of the economy. That is one reason why demand for physical precious metals is growing. The U.S. Mint continues to struggle to keep up with buying volumes for its American Eagle gold and silver coins.  Last month, the Mint sold 147,000 ounces of gold Eagles. That...

Euro area inflation once again exceeded expectations in May, sparking further speculation of faster ECB rate hikes. With core inflation rising to 3.8% y/y and seasonally adjusted m/m rate still around 0.5%, we now expect core inflation to peak only after the summer. Consequently, we have lifted our expectations for ECB rate hikes ahead of next Thursday’s meeting, and now look for 25bp hikes in every meeting from July to March (which would bring the deposit rate to 1.00%). Next week’s meeting will likely mark the formal end to ECB’s net asset purchases, and the focus will be on the possibility of 50bp rate hikes in the coming meetings, as markets are pricing in around 30% risk of such a hike in July. Read our full ECB Preview - Ready for lift-off, 2 June. Today, we published Big Picture: A (mild) recession in western economies seems unavoidable, 3 June, with our latest economic forecasts. We now expect US economy to fall into a mild recession during H1 2023, with euro area following suit in H2 2023. The combination of weakening real purchasing power and tighter financial conditions will weigh on economic growth, even though pent-up demand, savings and the re-opening of economies will continue to support activity especially in the service sector in the near-term. Chinese growth will likely recover towards 2023 on the back of renewed stimulus, but with the latest lockdowns and no signs of easing the ‘zero-covid’ strategy for now, we have downgraded our growth forecast for 2022. As global demand outlook weakens towards 2023, we also expect the current inflation pressures to ease. That being said, we still expect euro area and US core inflation to remain above central banks’ target levels even in 2023, supporting the case for further rate hikes. OPEC+ failed to stabilise rising oil prices after EU announced the embargo on Russian oil. OPEC+ agreed to hike production by 648 thousand barrels per day (bpd) in July and August, above the initial plan of 432 bpd, but it did not yet address Russia’s status within the group. While the larger production increases ease the supply situation in the near-term, they also mean less potential production capacity in the future, leaving the oil market vulnerable to new supply shocks. We expect prices to remain elevated in the coming months, and maintain our forecast for Brent at USD115/bbl towards Q3. In China, Shanghai was able to end its two-month long lockdown this week. PMIs rebounded in May, and the recovering Chinese demand outlook is another factor supporting commodity prices. New stimulus was also announced this week, as policy banks are funding increasing number of infrastructure projects for the central government. Next week, focus remains on the Covid-situation, while the trade data released on Thursday will likely remain weak due to the disruptions caused by the pandemic. In terms of economic data, next week’s highlight will be the US CPI on Friday. We expect the figures to continue illustrating strong and broad-based price pressures. Aside from the ECB, we expect the Reserve Bank of Australia (RBA) to continue its hiking cycle with another 25bp hike, but following recent 50bp hikes by the Fed, Bank of Canada and the RBNZ, risks are tilted towards a larger hike also in Australia. Download The Full Weekly Focus

Summary United States: Economic Storm Clouds or Just a Brisk Inflationary Headwind? Nonfarm payroll growth exceeded expectations in May, with employers adding 390,000 jobs. The unemployment rate was unchanged at 3.6%, but labor force growth edged higher and wages rose only modestly. Most of this week's other reports also came in above expectations, with the ISM manufacturing index rising 0.7 points to 56.1 and factory orders posting solid, broad-based gains. Next week: Trade Balance (Tues), CPI (Fri), U. of Mich. Sentiment (Fri) International: Hawkish Hike from the Bank of Canada, Mixed Data in the Emerging Markets The Bank of Canada delivered a 50 bps policy rate hike to 1.50%, and the accompanying statement was more hawkish than market participants expected. In emerging markets, data from China this week suggest the worst may be behind, as May PMI data revealed a modest uptick in sentiment. While China's economy is showing tentative signs of stabilization, Brazil is showing signs that activity is decelerating. Next week: European Central Bank (Thurs), Mexico Inflation (Thurs), Brazil Inflation (Thurs) Credit Market Insights: Federal Student Loans Brought to the Forefront Again On Wednesday, the Federal Department of Education announced that it will discharge $5.8B in federal student loans. These targeted actions do not broadly effect American balance sheets or the macroeconomy—$5.8B in federal student loans is a small fraction of the $1.6T in total student loan debt. Topic of the Week: The Growing Economic Influence of the LGBTQ+ Community Organized protests like the "Stonewall Uprising" have brought attention to the countless injustices that have been, and continue to be, inflicted on individuals identifying as LGBTQ+. The events that transpired 53 years ago were a pivotal moment in the long fight for equal rights. To commemorate Pride Month in 2022, we explore the growing economic influence of the LGBTQ+ community. Download the full report here

EUR/USD from yesterday's  long 1.0642 to target 1.0795. EUR/USD achieved highs so far at 1.0764 or +122 pips. EUR/USD for NFP could easily trade to 1.0801 and 1.0807 then short to target 1.0752 and break targets 1.0720's. Once EUR/USD achieves it highs then short for the day is the way to trade. EUR/USD close today could easily achieve 1.0720's and not a good location for next week's longs or shorts as next week would begin at fairly dead neutral. Same story as last week when EUR/USD opened at 1.0734. EUR/USD overall support is derived from  deeply oversold EUR/CHF, EUR/CAD and EUR/AUD yet overbought to EUR/JPY and EUR/GBP. EUR/USD big break for higher is now located at 1.0830 and a continued rise to all averages. Break higher from 1.0830 targets easily 1.0933 then 1.0984. The EUR/USD long side prevails next week. USD/JPY rose from 114.00's to 131.00's. At current 129.00's and 130.00's, USD/JPY trades at the top of the range and deeply overbought short, medium and long term. USD/JPY should trade today to easily 129.28. GBP/JPY overall range is located from, 148.00's to 168.00's. At 163.00's, GBP/JPY trade near its range top. Good target today is 162.85 from short 163.87. NZD/USD's big break is found at 0.6593 and targets today 0.6587 and 0.6590. Good short opportunity to target 0.6535. JPY cross pairs contain a long way to go on the downside and from the big 3 as GBP/JPY, EUR/JPY and CAD/JPY. GBP/USD for NFP targets 1.2625 while EUR/CAD and GBP/CAD offer good lomgs heading into next week. DXY is again located at solid supports at 100 and 101. For SPX today, targets 4202 on the up side and 4048 below. Next Week's markets will trade the exact same as this week: fairly neutral wuthout dramatic moves.