After the shock of “Black Friday,” global financial markets are on edge, bracing for a greater inflation test. The U.S. non-farm payroll data released last Friday far exceeded expectations, completely shattering market hopes for interest rate cuts. Caught between high energy prices and a red-hot labor market, the Federal Reserve’s policy stance is rapidly shifting to hawkish, and a storm of rate hikes appears to be brewing.
Since the U.S. and Israel launched an attack on Iran in late February this year, the conflict in the Middle East has lasted for 100 days, with no ceasefire in sight, continuously putting pressure on global energy prices. The market widely expects that the year-on-year growth rate of the U.S. May CPI, to be released soon, will further accelerate to 4.2%-4.3%, potentially hitting a new high since June 2023, with core CPI expected at 3%. Traders are focusing on the U.S. May CPI data to be released today (June 10) and the PPI data tomorrow (June 11). Additionally, the year-on-year U.S. April PPI has already surged to 6%, and forecasts suggest this indicator is expected to rise above 6.4%, reaching a new high since January 2023, which could open the door for further upward movement in future CPI.
Data from last Friday (June 5) showed that U.S. non-farm payrolls increased by 172,000 in May, nearly double market expectations, while the unemployment rate remained locked at a low of 4.3%. The “anchor for global asset pricing,” the 10-year U.S. Treasury yield, has surged to 4.58%, U.S. stocks suffered heavy losses, with the Nasdaq plunging 4.2% in a single day, while oil, gold, and bitcoin also fell across the board. The proportion of experts bearish on gold prices has jumped sharply to 74%, and global gold ETFs have seen outflows of approximately $2 billion in May. In contrast, the U.S. dollar is expected to build a “wind shield” thanks to interest rate differential advantages, sustained capital inflows, and strong economic data.
Faced with a hot job market and stubborn inflation, major Wall Street investment banks have withdrawn their forecasts for rate cuts in 2026. The interest rate swap market shows that traders have fully priced in one rate hike by the Federal Reserve in 2026. Goldman Sachs (GS) has completely abandoned its forecast for rate cuts this year, raising the probability of a rate hike from 10% to 20%, and lowering its U.S. unemployment rate forecast for this year from 4.6% to 4.4%. BNP Paribas expects the Fed to raise rates three times in a row starting in December. The CEO of consulting firm LB Macro pointed out that the narrative that the Fed would be forced to cut rates has been ended by the data, predicting that the Fed will raise rates by a total of 50 basis points this year, possibly starting as early as September.
Although recent U.S. stock market volatility has intensified and some institutions have begun to issue market peak warnings, J.P. Morgan Asset Management remains optimistic about the outlook for U.S. stocks, believing that strong corporate earnings growth will continue to support the stock market. Jack Caffrey, portfolio manager at J.P. Morgan Asset Management (JPM), stated that the core driver of the U.S. stock market’s rise is the continuously improving corporate earnings performance. He expects that after mid-double-digit growth in 2025, overall U.S. corporate profits could grow by more than 22% in 2026. Caffrey believes that short-term market volatility will not change the core logic of sustained corporate earnings growth. As long as corporate earnings expectations continue to be revised upward, the logic behind the U.S. stock market’s rise remains valid. However, he also cautioned that the market is unlikely to rise smoothly in the future; as factors such as interest rates, inflation, and geopolitics continue to have an impact, fluctuations will still occur during the market’s ascent.
