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With Kevin Warsh’s first meeting as chair of the Federal Reserve coming up in June, investors will turn to US labour market data due on Friday for an insight into how the central bank will react to pressure on the economy from high oil prices.
The most recent readings for non-farm payrolls and the unemployment rate pointed to a US labour market that has shrugged off the Iran war since it began at the end of February, even though soaring oil prices spell deep uncertainty for businesses and consumers around the world.
This strength is expected to have continued in May. Economists polled by Reuters expect the economy to have added 86,000 jobs in the month, a slight deceleration from 115,000 in April but still a “solid” reading, according to analysts at Bank of America.
Economists expect the US unemployment rate to be stable at 4.3 per cent.
Traders in futures markets are putting about a 50-50 chance on the Fed raising interest rates before the end of this year. But a stronger than expected labour market could “seal the deal” for rate rises, according to Bank of America analysts, who wrote that the Fed “typically doesn’t hike until the labour market forces its hand”. Emily Herbert
Is China’s economy going K-shaped?
Privately run purchasing managers’ indices for China next week will give investors a glimpse of how the country’s smaller businesses are faring amid high energy prices and weak consumer demand.
Analysts at Goldman Sachs expect the RatingDog manufacturing PMI to fall to 49.8 points in May from 52.2 in April, based on a fall in export momentum over the past month. They expect the services PMI to edge up to 52.8 points from 52.6 a month earlier. Readings below 50 points indicate contracting activity; those above 50 indicate expansion.
Larry Hu, chief China economist at Macquarie, said China’s economy had experienced “two-speed growth” since 2021, with weak domestic consumption causing deflation, which in turn strengthens exports.
Recent economic data has been mixed. In April, industrial output and retail sales growth slowed sharply while investment dropped. At the same time, industrial profits have risen, surging at an annual pace of 26 per cent last month.
Higher oil prices have boosted margins for the petroleum processing industry while surging demand for materials critical to the build-out of AI such as semiconductors, optical fibres, aluminium and copper has helped boost profits in those sectors. China’s trade surplus swelled to $84.8bn in April, with exports of electronic integrated circuits in the first four months of 2026 surging 84 per cent from a year earlier.
Officials have been frank in acknowledging the country’s mixed economic outlook.
“The external situation remains complex and volatile, and the contradiction between strong supply and weak demand in the domestic market remains prominent,” said Yu Weining, chief statistician at the industry department of the National Bureau of Statistics. William Sandlund
Has Euro area inflation risen above 3%?
A week ahead of the European Central Bank’s highly likely first interest rate rise for almost three years, inflation in the currency area is expected to have moved further above the central bank’s medium-term target of 2 per cent in May as the closure of the Strait of Hormuz continues to lead to erratic oil prices.
Economists polled by Reuters expect inflation in May to have risen for the fourth month in a row to an annual pace of 3.3 per cent when Eurostat reports its first estimate on Tuesday. If correct, this would be the highest rate since September 2023. Even more worryingly for central bankers, rising energy prices in May appear to have spilled over into the wider economy. Core inflation, which excludes volatile prices for energy and food, is seen rising by 0.2 percentage points to an annual 2.4 per cent.
The ECB is all but certain to respond by raising interest rates by a quarter point to 2.25 per cent at its meeting on June 11. Traders in swaps markets are pricing a 90 per cent probability of such a move and expect a further quarter-point increase by the end of the year.
“Given the size and the persistence of the current shock, looking through is no longer an option in my view,” ECB executive board member Isabel Schnabel said this week, warning that inflation could rise towards 4 per cent by the end of the year.
Even in April, when the ECB’s governing council unanimously decided to keep interest rates unchanged, several members had clear sympathies for an increase. “A number of members noted that the decision was a close call,” the minutes noted, adding that “they would not have opposed raising rates at the current meeting had this been on the table”. Olaf Storbeck
