Weekly Commentary 9 June 2026

Summary

• US equities paused after a strong run, as stronger economic data and renewed inflation concerns led investors to question whether interest rates may need to stay higher for longer

• A stronger-than-expected US payrolls report reinforced the picture of labour market resilience, but markets treated the news negatively as it added to fears that policy could remain restrictive

• Oil prices moved higher and price pressures continued to build, adding to evidence that the disinflation trend (a sustained period where the rate of inflation slows down) is becoming more complicated

• US Federal Reserve (Fed) officials have continued to strike a more hawkish or forceful tone, with markets now shifting away from expected rate cuts and beginning to price in the possibility of further tightening

• In Europe, the European Central Bank (ECB) is expected to raise rates, while the Bank of England (BoE) faces a more difficult backdrop of weak growth, persistent inflation and ongoing gilt market pressure

• This week’s focus is on the ECB rate decision, US Consumer Price Index (CPI) inflation and the market impact of the record-breaking SpaceX Initial Public Offering (IPO).

Market Review

Hawks, payrolls and price pressures

Equities took a breather last week following nine consecutive weeks of gains in the US and a remarkably strong recovery globally since March. The tone has become more cautious as evidence of renewed price pressures continues to build.

Friday’s US payrolls report was particularly strong, with 172k jobs added in May, well above the 88k expected, while previous months were also revised higher. US equities fell 2.75% on the news, leaving the market down 2.6% over the week as inflation concerns outweighed the positive growth signal from labour market resilience. The strong payrolls added to other recent signs of renewed momentum in the US economy, including manufacturing output at a four-year high, strong equity market performance and resilient consumer spending. President Trump pushed back against the market reaction on Truth Social, writing: “With a great Jobs Report, like just announced, stocks should go up, not down. That’s the way it was for 200 years. Growth does not mean inflation! How else can a Country attain GREATNESS???”.

It is a dynamic investors have become familiar with in recent years: when inflation risks are elevated, good economic news can quickly become bad news for markets. Stronger growth raises the prospect that central banks may need to keep policy (interest rates) tighter for longer.

Oil prices also moved higher over the week, with WTI crude back above $90 per barrel, adding to inflation concerns as conflict in the Middle East continued to rumble on. Ahead of the June Federal Open Market Committee (FOMC) blackout period, Lorie Logan and Beth Hammack both argued for a tightening bias, aligning with our view that the Fed appears to be recalibrating in a more hawkish direction.

It is an interesting start to Fed Chair Kevin Warsh’s term, as he is already under pressure to move against the President’s view that interest rates should be lower. Warsh’s main argument for lower rates had been that productivity gains from Artificial Intelligence (AI) should help reduce inflation for now, however, the AI build-out appears to be having an indisputable upward impact on prices. Warsh may look to assert his independence at the June meeting by abandoning Powell’s easing bias in favour of a tightening one (cutting to raising interest rates).

The bond market is already pricing in a tightening bias with the market now predicting one hike this year and another likely in 2027. Before the Iran conflict the market was pricing in three cuts by the end of next year. The 10-year treasury yield rose 9 basis points last week to close at 4.53%, up from 3.94% at the end of February.

The Week Ahead

ECB rate decision (and thoughts on the BoE)

Hawks are circling on the other side of the Atlantic too, with the ECB looking certain to hike on Thursday. The market is currently pricing a 99.9% probability of a move. While the ECB is more likely to raise rates because it is starting from a more neutral stance than either the Fed or the BoE, it will still be wary of sounding too hawkish against a weak growth backdrop. President Christine Lagarde will likely leave the door open for a second hike.

This is similar to the BoE, although relative to European bond markets the gilt market remains under more strain from multiple directions. Growth looks more exposed to economic shocks than in either the US or eurozone, and inflation is simultaneously less well anchored. With gilt yields elevated and growth soft, any renewed inflation pressure risks worsening an already difficult fiscal backdrop. Like the ECB, the BoE must weigh a weak growth environment against stubborn price pressures, but unlike the ECB it also faces a more fragile domestic fiscal setting and a gilt market that remains sensitive to policy credibility.

SpaceX IPO

SpaceX is listing about 555.6m shares at $135 each ($75bn) on Friday; a deal that could value the company at about $1.8tn. The rocket and satellite company is set to deliver the largest ever IPO, over double the size of Saudi Aramco’s $29.4bn listing in 2019. The company has already received orders for more than the shares available and index providers, like NASDAQ and FTSE, have changed their eligibility requirements to accelerate the firm’s inclusion in their benchmarks which will fuel buying from passive investors.

US CPI inflation

Economists see inflation rising to 4.2% in May, the highest since April 2023, driven largely by higher gasoline prices and unfavourable base effects. While the year-on-year reading is expected to move higher, the monthly increase may prove more benign and closer to a pace consistent with the Fed’s target, as firmer energy and commodity prices are partly offset by softer goods demand. Even so, with inflation still elevated and growth momentum holding up, the release is unlikely to materially alter the Fed’s increasingly hawkish tone. May may prove to be the high point for this cycle, but not one that offers immediate reassurance to policymakers that inflation is heading back towards target. Indeed, May will mark the 63rd consecutive month in which CPI inflation has exceeded the Fed’s 2% target.