ECB – Last Cut?
Last week, the ECB cut rates by 25bps, bringing the deposit rate to 2.0% – its eighth consecutive cut since June 2024. Lagarde hinted that the cutting cycle may be nearing its end, with 2026 inflation now forecast at 1.6%. Markets reacted with a rally in European rates and a sharp repricing of future cuts. But the ECB’s path remains vulnerable to global macro shocks – so for now, the bar for further easing is higher.
Trump and Xi – Easing Tensions
U.S. President Donald Trump and China’s Xi Jinping held a 90-minute call to address rising trade tensions. It came after Trump doubled tariffs on steel and aluminium, accusing China of violating a recent truce. Despite the escalation, the tone was described as constructive, and both sides announced plans for an in-person meeting. Markets welcomed the dialogue as a positive step for risk sentiment and global growth.
US – Economy still in good shape
On Friday, U.S. nonfarm payrolls rose by 139,000 in May, slightly above expectations, signalling a still-resilient labour market. The unemployment rate held at 4.2%, and average hourly earnings rose 0.4%. Job gains were led by healthcare and leisure, while government and business services saw declines. Rates sold off modestly, with the 10Y yield up 6bps. The market’s focus now shifts to next week’s inflation data. Signs of deterioration in the U.S. economy are still not visible.
Algebris Investments’ Global Credit Team
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