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[Quick Facts]

1. U.S. initial jobless claims hit a 1-1/2 high last week.

2. Britain and the U.S. reach a number of agreements but failed to secure a free trade deal.

3. Inflation drags the Eurozone into recession.

4. A "soft landing" is possible now.

5. Canada's recent rate hikes have triggered chain reactions.

[News Details]

U.S. initial jobless claims hit a 1-1/2 high last week

The U.S. Labor Department announced on Thursday that initial jobless claims surged by 28,000 last week to a seasonally adjusted 261,000, the highest level in more than a year and a half. It was driven mainly by increases in Ohio, Minnesota, and California. Continuing jobless claims, a hiring barometer, fell by 37,000 to 1,757,000, the lowest level since February.

But layoffs are probably not accelerating as the data covered the Memorial Day holiday, which could have injected some volatility.

The jump in claims could be a sign that layoffs are picking up. But given that claims fluctuate from week to week, it's too early to draw that conclusion.

Britain and the U.S. reach a number of agreements, but failed to secure a free trade deal

British Prime Minister Rishi Sunak left Washington at the end of a two-day visit to the United States. U.S. President Joe Biden backed Sunak's efforts on artificial intelligence and signed a deal with him for closer economic cooperation to support green industries and supply chains. The two leaders agreed to begin work on a deal that could eventually enable British manufacturers to receive the substantial U.S. subsidies and tax breaks contained in Biden's signature Inflation Reduction Act. The two countries also agreed to recognize each other's data protection regimes. However, the U.S. and U.K. are still far from reaching a comprehensive free trade deal.

Inflation drags the Eurozone into recession

The Eurozone economy fell into recession earlier this year due to high energy and food prices after the Russia-Ukraine conflict, which hit household spending. Eurostat had predicted that the Eurozone economy would grow slightly in the first quarter, but the sharp changes in German and Irish data sent the Eurozone economy into contraction. This also made the region's output shrink for two consecutive quarters, in line with the official definition of recession. Economists expect the economy to return to growth in the three months to June as lower energy prices ease pressure on household budgets, but any rebound is likely to be tepid. While energy prices have returned to normal from their 2022 peak, food prices continue to rise rapidly, which in turn has weakened household spending on other goods and services.

A "soft landing" is possible now

As the first half of 2023 comes to a close, the widely predicted U.S. recession is still not in sight. The consumer sector, which has driven the U.S. economy's remarkable recovery from the pandemic, however, may have shown signs of weakness.

For now, the signals economists use to judge a possible recession are conflicting. The yield curve remains heavily inverted, and manufacturing surveys have been signaling recession for months. But so far, layoffs concentrated in the technology sector have not spread widely, and consumer sectors such as travel appear to be booming.

As the market expects the Federal Reserve will not raise interest rates at its June meeting, it's again possible for the U.S. economy to achieve a so-called "soft landing." On Tuesday, Goldman Sachs reduced the likelihood of a U.S. recession to 25% in the next 12 months.

Canada's recent rate hikes have triggered chain reactions

The Bank of Canada was the first central bank among the G7 to stop raising rates in March, but it had no choice but to restart rate hikes again. On June 7, local time, the Bank of Canada unexpectedly raised interest rates by 25 basis points. The Bank did not publish forward guidance on interest rates, suggesting that there is disagreement within the central bank over rate hikes.

The Bank of Canada's unexpected rate hike triggered chain reactions. The market is more convinced that the Fed's rate hike cycle has not yet ended. Even if the Fed suspended rate hikes in June, it may also restart hiking rates in July.

It is important to note that the Bank of Canada was not the only one to unexpectedly raise rates this week. At a time when inflation is well above target and labor costs are soaring, the Reserve Bank of Australia also "unexpectedly" raised its key interest rate and is open to further rate hikes.

[Focus of the Day]

UTC+8 18:45 ECB Governing Council member Hernandez de Cos speaks

UTC+8 20:30 Canada Unemployment Rate (SA) (May)

UTC+8 00:00 ECB Governing Council member Centeno speaks