2026 Weekly Update

Market update

The S&P 500 closed the week at 7’383.74, -2.59% lower. The Dow Jones closed at 50’866.78, -0.32%, with the Nasdaq lower by -4.68%. The volatility index VIX closed the week at 21.51, up from 15.32. The Euro Stoxx 600 fell -0.53%. 

The 10-year UST closed at 4.53%, up from 4.44% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 82bps. US Corporate Bond spreads: Investment Grade spreads narrowed -1bp at 76bps and High Yield spreads narrowed -6bps at 314bps. German 10-year Bunds yield closed at +3.04% up from +2.94% a week before. In Europe, Corporate Investment Grade spreads narrowed 3bpsat 88bps and High Yield narrowed 7bps at 312bps. 

The US Dollar Index (DXY) appreciated +1.14% last week and closed at 100.07. The Euro closed at 1.1522 (-1.18%); the Yen depreciated -0.64%, closing at 160.29 and the Swiss Franc depreciated -1.93%, closing at 0.7961. Gold closed at $4'328.45, depreciating -4.67%. Oil was higher, Brent closed at $93.09 (+1.13%) and WTI at $90.54 (+3.64%).

Macroeconomy

US jobs

The Establishment Survey headline job additions for May was strong at +172k (vs. forecast of +88k). Job gains occurred in leisure and hospitality, local government, and health care. Employment in financial activities declined. The revisions for March and April were very strong going up a combined 93k jobs. The Household survey was also healthy, with the number of employed people rising 149k in May vs. April while the number of unemployed people fell 66k. The civilian labor force rose 83k m-o-m while the participation rate was unchanged at 61.8%. The unemployment rate held steady m-o-m and was in-line with expectations at 4.3%. Average hourly wage growth was right in-line with expectations at +0.3% m-o-m and +3.4% y-o-y (vs. +3.6% in April). The workweek length was flat in May vs. Apr and in-line w/the Street at 34.3 hours.

US tariffs

Tariff revenues have started to decline from their October 2025 peak when measured as a share of goods imports, with current revenues running at about USD 250bn annualized and an effective tariff rate around 8%. IEEPA-related tariff refunds have begun to be paid, with more than USD 20bn refunded by end May, but the Trump administration’s appeal could delay further disbursements. So far, these refunds have not created a material hole in the fiscal deficit. Overall, the new section 301/232 framework is expected to keep the effective tariff burden close to current levels even as trade patterns adapt. These recent tariff announcements are seen mainly as technical adjustments to replace expiring Section 122 measures and to alleviate cost pressures, rather than a meaningful escalation of the trade conflict. The plan is to replicate today’s effective tariff rate after Section 122 tariffs expire on July 24th by shifting to new Section 301 and 232 levies. The preliminary proposal envisages 10% Section 301 tariffs related to forced labor on Canada, Mexico, the EU, the UK and Taiwan, and 12.5% on China, Switzerland, India, Japan and South Korea. Some Section 232 tariffs on specific metal products have been cut from 25% to 15%, likely in response to higher production costs and the Iran war.

US data

The ISM services index rose by more than expected in May, up to 54.5 (vs. 53.8 expected). On the manufacturing side, the ISM print hit a 4-year high of 54.0 in May (vs. 53.0 expected). The Beige Book now characterizes price increases as “modest to moderate” and notes firms’ growing concern about input costs. It also describes an E shaped economy, with high income households still performing well, middle income groups under pressure and lower income households facing significant financial strain.

European prices

Euro area flash headline HICP inflation rose from 3.0% to 3.2% y-o-y in May, in line with expectations and the highest rate since September 2023. This is also the third consecutive month with inflation above the ECB’s 2% medium-term target. Core inflation surprised to the upside, increasing to 2.5% from 2.2% in April. Within core, services inflation picked up sharply, rising by 50bps to 3.5% y-o-y in May, while goods inflation was broadly stable at 0.9% (from 0.8%). The strength in services is likely linked to travel-related items—airfares and package holidays—where higher oil prices may have passed through more strongly than anticipated.

ECB preview

As the European Central Bank (ECB) is expected to meet on June 11th, investors are pricing in a 25bps rate hike and another increase at one of the final three meetings of the year. This would bring the deposit facility rate to 2.25%. The Governing Council (GC) is likely to frame the move not as the start of a hiking cycle given the weak growth outlook, but as a recalibration to reaffirm its commitment to price stability. ECB officials have been laying the ground for a rate hike in June, so the focus next week will be on communication, especially on whether the ECB gives any guidance on what will happen after June’s meeting.

Swiss inflation

Swiss headline inflation remained stable at 0.6% y-o-y in May, slightly below consensus but in line with our own forecast. Core inflation was unchanged at 0.3%. We expect headline inflation to rise somewhat from here, but to remain comfortably within the Swiss National Bank (SNB) 0–2% target range. This was the last inflation print before the SNB June 18th meeting. Recent data have broadly tracked the SNB’s conditional inflation forecasts. Compared with other central banks, the SNB is in a more comfortable position, as inflation is expected to increase much less than in other European economies.

Japan data

Japan’s real wages rose by +1.9% in April (compared to +1.7% anticipated) y-o-y, contributing to a smaller-than-expected decline in household spending. Average nominal wages, or total cash earnings, increased by +3.5% y-o-y (against +3.1% expected). This figure represents the fastest wage growth since December 2024, following a revised increase of +3.1% in March. The April data marks the first instance in over 34 years where wage growth has surpassed 3% for three consecutive months. In a separate report, Japan’s household spending decreased by -0.5% y-o-y in April, a less severe decline than the expected drop of -1.5%, following a -2.9% decrease in the previous month. This decline has extended the trend of falling consumer spending to five consecutive months. In another development, the Japanese cabinet has approved a draft supplementary budget of ¥3.1 trillion ($19.4 billion), which includes a newly established ¥2.5 trillion reserve fund aimed at addressing rising commodity prices through subsidies. Prime Minister Sanae Takaichi’s administration is seeking parliamentary approval for this budget by Friday. Although the specific applications of the fund have yet to be detailed, it is anticipated to help assist in alleviating high living costs resulting from the Iran conflict. Lastly, BoJ Governor Ueda signaled in a speech that a rate hike may need to be considered. For instance, he said that if “upside risks to prices outweigh downside risks to economic activity, it will be necessary to thoroughly discuss the pros and cons of raising the policy interest rate”.

China data

Chinese services activity expanded at its fastest pace in three months during May, as the RatingDog Services PMI rose to 54.4 from 52.6 in April, surpassing analysts' expectations of 52.3, driven by stronger domestic demand and new client acquisitions that enhanced business activity. Also, China's official manufacturing and non-manufacturing PMI came in at 50.0 (in-line with consensus, 50.3 last month) and 50.1 respectively (consensus 49.5, 49.4 last month). The private sector manufacturing PMI came in at 50.1, four tenths of a percent higher than last month.

Australia data

Australia’s GDP grew by +2.5% y-o-y in the three months leading up to March 31, which was below the anticipated +2.7% increase and a decline from the +2.6% growth recorded in the previous quarter, as persistent inflation and escalating fuel prices due to the Middle East conflict have impacted private spending.

Highlights

IPO activity

IPO activity is drawing a lot of attention this year, with interest reminiscent of the late 1990s. In 1999-2000, annual IPO volumes reached 400-500 deals, raising $62bn in 1999 and $55bn in 2000, equivalent to $110 – 120bn today when adjusted for inflation. This year, US equity issuance is settled to exceed $600bn, a record in absolute terms, though it represents just about 1% of total market capitalization, still below the 1.5-2% range seen over the past 30 years. For the first time since the early 2000s, the net balance between buybacks and new issuance is expected to be close to zero. Despite the active calendar, performance and valuations remain more restrained than in past cycles. The Nasdaq has risen 43% over the last twelve months, well below the 125% y-o-y peak seen in 2000. US TMT stocks are trading at a 12-month forward PE of 25x, compared to 45x at the 2000 peak, and are enjoying higher profit margins—23% today versus 13% in 2000. This points to a more balanced environment for new listings, with investor enthusiasm tempered by a focus on fundamentals.

Credit markets

Credit markets have largely shrugged off recent geopolitical tensions, with US and euro high yield spreads tightening to new lows and offering limited compensation for ongoing risks. Overall yield levels remain elevated: euro investment grade yields are around 3.6%, and US investment grade yields are at 5.2%, with even higher yields further down the credit spectrum. Year-to-date, US high yield is up about 1.6%, driven by the B-rated segment (+2%), while CCC-rated bonds remain slightly negative and have failed to recover, with spreads still close to stressed levels (~1,000bps). In contrast, euro high yield has seen CCC-rated bonds outperform, supported by wider spreads (~1,300bps). Default concerns are rising, as euro high yield defaults picked up markedly in April and the global bond default rate has reached around 4.3%. Loan default rates remain elevated at 5.6%, especially among riskier issuers. Despite market expectations for default rates to moderate below 3% over the next year, recent data suggest these forecasts may be too optimistic. Segment divergences persist in US investment grade, tech spreads are now near 77bps, slightly above the index average, while in US high yield, the energy sector (11% of the index) has benefited from spread compression to around 160bps. By contrast, tech loan spreads remain elevated at about 700bps, and private credit performance is down roughly 9% year-to-date, reflecting weaker borrower quality, about 76% of private credit borrowers are rated B, compared to ~20% in US broadly syndicated loans and ~10% in US high yield. Funding costs for leveraged loans are near 9%, a level that could be difficult to sustain if economic growth slows.

On rates

US Treasury yields surged last week as speculation over a potential Fed rate hike intensified, following a strong US jobs report. Markets are now fully pricing in a Fed rate hike by December, which drove the 2-year Treasury yield up by 14.3bps to a one-year high of 4.15%, while the 10-year yield climbed 9.4bps to 4.53%. In Europe, sovereign bond yields also moved higher, with the 10-year bund yield rising by 10.1bps to 3.04%, as investors priced in 69bps of ECB rate hikes by year-end. Meanwhile, the yield on the 10-year Japanese government bond was broadly unchanged at 2.66%. However, comments from Bank of Japan Governor Ueda were seen as increasing the likelihood of a rate hike in June, as he emphasized the need to prioritize a response to inflation.

What to watch

• Monday: US NY Fed 1-yr inflation expectations; Germany Factory Orders; Japan Final Q1 GDP
• Tuesday: US NFIB Small Business Optimism, Existing Home Sales; Germany Industrial Production; Japan Machine Tool Orders, South Korea Q1 GDP
• Wednesday: US CPI; BoC rate decision; Italy Industrial Production; Japan PPI, China CPI/PPI
• Thursday: US Initial Jobless Claims, US PPI; ECB Rate Decision; South Korea Exports
• Friday: US University of Michigan Survey; UK Industrial Production, Germany/France CPI; Japan Industrial Production, India CPI