The US labour market is cooling down, and today’s Employment report brought another confirmation of this trend. Job creations in the private sector have settled below 200k per month throughout Q2 and declined to 136k in June. The unemployment rate ticked up to 4.1%, its highest level of this expansion cycle. Only government jobs continued a solid upward trend, which may not be surprising in an electoral year. The normalisation of the US labour market is one of the five key trends to watch for the next 6 months (cf. Syz H2 2024 Market Outlook: Normalisation ahead). Today’s US Employment Report fits into this dynamic, which is at the heart of our expectations for economic growth normalisation, softer inflationary pressures and central bank rate cuts.

The SNB has lowered its key rate again today, to 1.25%, after the previous 25bp cut decided in March. This decision appears grounded in a combination of three factors: inflation is on a stable and moderate trajectory, economic growth remains soft and excessive upward pressures on the CHF may arise during the summer.. With this decision, the SNB has likely completed its monetary policy recalibration and is unlikely to cut rates further this year.. Should European or global developments trigger volatility and upward pressures on the CHF, the SNB will probably resort to interventions on the FX market to manage the impact on the economy, rather than use the interest rate lever.

Executive Summary: The Bank of England's Monetary Policy Committee meets on June 20th with expectations set for maintaining the current Bank Rate amid recent economic and inflationary developments. Despite a strong initial performance in June, the UK government bonds have stagnated since the last BOE meeting. • Watch This: The focus is on the number of MPC members supporting a rate cut (currently 2 out of 9) and any forward guidance regarding future rate adjustments. • Market Strategy: Preference for the short end over the back end of the UK government yield curve continues, as GBP strengthens amidst differing economic dynamics between the US and UK.

The past couple of weeks have brought useful insights about the US economy. And although pockets of weakness, risks and uncertainties remain, while the Presidential election looms, the general situation today appears to be quite good for the world’s largest economy. Business activity remains clearly positive, inflation has resumed a slowing trend after a short-lived unexpected pickup, and the Fed has clear room for easing its monetary policy if needed but has no need to rush neither. The scenario of a smooth, soft landing, where inflation would gently converge toward the Fed target, growth would gently converge toward its long-term potential, and the Fed would eventually gently loosen its monetary policy toward a neutral stance, no longer appears to be a pipe dream.

• Political and fiscal uncertainty: the Rassemblement National's (RN) gains in the European elections introduce political and fiscal uncertainty into France's fixed income market. Key risks include potential policy shifts towards increased public spending, undermined investor confidence, and heightened market volatility. • Market reactions: immediate market reactions have already seen selloffs in bonds, with increased yields on French government bonds (OATs) and a steepened yield curve. Foreign investors are particularly concerned about capital outflows and the broader economic implications within the Eurozone. • Credit rating downgrade: the recent S&P downgrade highlights the need for careful monitoring of France's credit rating and its impacts on the fixed income market. • Future risks: if the RN performs similarly in the upcoming legislative elections, the risk to France's bonds could intensify, driven by potential shifts in fiscal policy and sustained political uncertainty

After months of speculations, this week could mark the start of the long-awaited global rate cut cycle across developed economies. (...)

Next week, the European Central Bank (ECB) is likely to embark on a new phase of its monetary policy: normalisation. After maintaining very restrictive rates to combat higher-than-target inflation, the ECB is poised to ease this restrictiveness. The first rate cut, expected next week, comes 266 days after the last rate hike, closely aligning with the historical average between cycles. Based on recent comments from ECB members, the rate cut is almost a certainty. However, the path to the terminal rate, which should be the neutral rate—which neither stimulates nor restrains the economy—will be long and winding.

The Bank of England (BoE) is set to release its crucial monetary policy decisions this Thursday, a pivotal event with implications that could reverberate across global markets.

An update on latest developments in the US economy

The Swiss National Bank cut its key rate to 1.50%, surprising markets as the first major central bank to lower rates post the 2022/23 hike cycle, citing effective inflation control and improved economic growth forecasts, aiming to support economic activity without undue pressure.