Global: The Federal Reserve’s narrative to be patient on interest rate cuts has become more bark than bite without the backing of US data. Job Openings and Labor Turnover Survey (JOLTS) job openings fell to 8,059k in April, weaker than the 8,350k consensus, while March’s figure was revised down to 8,355k from 8,488k. The US’ manufacturing sector weakened further in May, with the ISM Manufacturing Index falling from 49.2 in April to 48.7 in May.

PCE and core PCE inflation, the preferred inflation measures of the Fed, stalled at 2.7% y/y and 2.8% in April respectively. On a sequential basis, core PCE moderated from 0.3% m/m to 0.2%. The relatively modest inflation was underpinned by slower personal income growth. This points to a more balanced labour market condition. Against this backdrop, personal spending growth eased from 0.8% to 0.2%.

Last week’s downward revision of 1Q GDP figure (from 1.6% q/q saar to 1.3%) further attests to moderating consumer sentiment. With the US economy moving from exceptional growth towards a soft landing, the Fed will expect inflation to cool in 2H24. At next week’s Federal Open Market Committee (FOMC) meeting on 12 June, Fed Chair Jerome Powell may warn again that the US is on an unsustainable fiscal path arising from its mounting debt.

The European Central Bank (ECB) announced its first interest rate cut since 2019, cutting its deposit rate from a record-high 4% to 3.75%. The ECB cited progress in tackling inflation even as it acknowledged that inflation is likely to stay above target well into next year – core inflation increased to 2.9% in May vs. the consensus for it to stay unchanged at April’s 2.7%. We expect policy to remain restrictive for the rest of the year to get inflation to the 2% target. Meanwhile, other global central banks have aligned with the Fed’s cautious stance to get inflation back to target, by delaying and reducing the number of interest rate cuts this year.

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