The past week saw two important updates that may be consequential for the US economic outlook this year. First, data that feed into current-quarter GDP tracking have continued to show notable resilience in the face of the sharp contraction in oil supply and jump in energy prices. Second, front-month crude oil futures declined over $10/bbl last week on reports of an extended ceasefire that could re-open the Strait of Hormuz. While uncertainties remain, the acute risk phase for the global economy should be over if tankers can begin moving again. In US macro data last week, core PCE came in slightly softer at .24% MoM but YoY remained at 3.3%. Trimmed-mean PCE — which Chair Warsh has highlighted as an alternative gauge of underlying inflation — eased to 2.3% y-o-y, about a full percentage point below core PCE. We believe that trimmed-mean PCE may be understating inflation risks, particularly because it has been slow to capture shifts in goods inflation dynamics and the recent change in the skewness of the inflation distribution. PCE trimmed-mean inflation underestimates the underlying inflation by 48bp on a y-o-y basis. Coming to next week, the economic calendar may move back to the forefront for market participants. The main highlight will be Friday’s May employment report where we expect headline +105k forecast vs. +115k previously. Our forecast would bring the 3m average of NFP growth up to 136k – the strongest since December 2024. In other US macro data next week we have ISM services, ISM manufacturing, JOLTS & initial jobless claims. We do not have dated UST supply next week. Fed speak last week reflected a broad-based shift towards a more hawkish tone on the FOMC, even as most officials continue to expect disinflation in coming months as their base case. Skepticism of labor productivity-led disinflation has been a focus for the FOMC recently. Several officials acknowledged AI’s potential to lift longer run growth but remain unconvinced that productivity gains can reliability ease inflation in the near term. On Iran conflict, no clear resolution in sight yet. US President Donald Trump has demanded changes to a proposed agreement with Iran, triggering a fresh round of negotiations that could delay a final deal by several days. Our own take is a temporary 60-day agreement is likely this week around Wednesday considering both parties are agreeing to not seek war though they do differ on two major topics: SoH and enriched Uranium status. To summarise on US economy, with Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months till end CY26. Any future inflation developments might be the most-likely catalyst for an eventual resumption of rate cuts or pivot to hikes. In RoW data, we have Eurozone May HICP data on Tuesday which is expected to accelerate to 3.3% from 3% in April. We see two ECB rate hikes in June and Sep this year as a result of higher energy prices.
