The major Wall Street indices edged higher for the week (1-4 June) on “feel good” factors with the Dow up by 0.7% and the S&P 500 by 0.6% and close to revisiting all-time highs in February, while the Nasdaq Composite rose just shy of 0.5% for its third winning week in a row in a shortened trading week due to Memorial Day on Monday.

The markets closed the first week of June on an “almost everything rally” including US Treasuries, gold, techs and reopening stocks on the back of a Goldilocks jobs report which while coming under expectations also assuaged investors that the Fed will not be tapering monthly bond purchases anytime soon and take a bite out of the massive liquidity that has underpinned the equities run-up since March 2020.

The 10-year Treasury yield which rose as high as 1.75% in recent months due to rising inflation fears fell back to 1.56% following the payrolls report which showed the US economy adding 559,000 jobs in May or below estimates of 671,000 while the unemployment rate fell to 5.8% from 6.1% which was better than the estimate of 5.9% – pointing to a healthy but not too hot rebound that may prompt the Fed to tweak the monetary needle.

The services industry saw a pick-up of 489,000 jobs – the leisure and hospitality segments adding 292,000 positions including 186,000 from F&B outlets – indicating an economy continuing to reopen as virus cases decline with 63% of Americans gotten at least their first vaccine jabs and closer to the target of 70% by July set by the Biden Administration.

With the onset of summer activities including travel set to rise and schools to reopen by fall and unemployment benefits expiring by September, there is rising optimism that the US jobs situation will improve as labour market mismatches ease in the coming months.

It would however be some time before the 7.6 million losses due to the pandemic will be restored, which is the Fed’s ultimate goal before it makes any drastic steps to temper inflation pressures. The pace of job recovery though is already better than the trajectory after the last big recession due to the Great Financial Crisis (2007-09).

Some economists have commented that while short-term inflation pressure will surface in some segments of the economy, pressures will likely ease as supply chain constraint issues are sorted out progressively as the economy continues to reopen. Longer-term inflation could be addressed by US governing spending from proposed infrastructure projects to deal with supply bottlenecks by the Biden administration.

Across the Atlantic, the Eurozone also looks poised to rebound from a technical recession of two downturn quarters with the IHS Markit’s final manufacturing PMI rising to 63.1 in May from April’s 62.9, its highest reading since June 1997.

The 27 EU member economies will also get a boost from the 750-billion-euro stimulus ($900 million) fund in the coming months even as vaccine rollouts starts to improve after slow starts which should see the pace of reopening gather pace and consumer spending catches up, which will bode well for European businesses and markets.

Gold which rose 7.8% to more than $1,900 in May – its biggest monthly rise since July last year – due to investors’ worries over rising inflation will likely see interest due to a weakening US dollar as it makes purchases cheaper for many international investors, as well as probably benefiting from a rotation from some speculators out of volatile cryptocurrencies also dubbed as ‘digital gold.’ Spot gold rose 1% to $1,889 on Friday after the US payrolls report but was overall down 0.7% for the week due to earlier bouts of profit-taking.

Inflation watch will be the continual theme in the week ahead with the release of the May consumer price index (CPI) in addition to wholesale trade and more job numbers which has become a key gauge to assess the rate of US recovery. There are no major Fed events scheduled until the next FOMC meeting on 16 June.

US President Joe Biden will be making yet another tilt this week to narrow the differences between the White House and Republican senators over the size of the proposed infrastructure stimulus and how to fund it through various tax avenues.