Market Commentary 9th June 2025 – from Charlie Hancock

Purchasing Managers’ Index (PMI) data for the UK’s construction sector showed that employment in construction firms fell last month at the fastest pace since August 2020. The overall PMI index indicated that the sector contracted during May. The services sector experienced better conditions during the month, with services returning to growth after experiencing a contraction during April.

In contrast to the previous week’s report from Nationwide, the mortgage lender Halifax reported that the average house price declined during May, with a fall of 0.4%. On a year-on-year basis, the average house price rose by 2.5%. Meanwhile, comments from Bank of England (BoE) Governor Andrew Bailey highlighted growing uncertainty about the path of interest rates. Bailey suggested that although the BoE’s trajectory for rates is “downwards,” the speed and extent of future cuts are uncertain.

The European Central Bank (ECB) cut interest rates by a further 0.25% last week, bringing their key interest rate to 2%. The ECB’s president, Christine Lagarde, said that the central bank had “nearly concluded” its policy cycle, having reduced interest rates to the lowest level seen since 2022. Inflation data showed that headline consumer price increases slowed to 1.9% in May, down from the 2.2% recorded for April. The data appeared to support the ECB’s decision to lower borrowing costs.

Data for Eurozone Gross Domestic Product (GDP) showed that the bloc’s economy expanded by 0.6% in the first quarter of 2025, which was double the previous estimate. On a less positive note, industrial production in Germany shrank by 1.9% in April, with a decline in exports during the month being a key factor.

Tensions between the US and China continued to make headlines, following social media comments from President Trump which criticised China’s trade policies. Investors appeared to shrug off concerns around further escalation in the trade dispute, after Trump and President Xi Jinping held a phone call which Trump described as having “a very positive conclusion for both countries”.

US labour market data painted a mixed picture last week. A report from payroll operator ADP showed the private sector in the US added just 37,000 jobs during May, marking the lowest level of job growth since March 2023. The official payroll report, which includes public sector employment, showed that the economy added 139,000 jobs in May, with the unemployment rate remaining steady at 4.2%.

PMI data indicated that the services sector slipped into contractionary territory in May, while the manufacturing sector saw a decline in activity for the third consecutive month. The data appeared to highlight the negative impact of continued uncertainty regarding US trade policy.

PMI data in China indicated that the trade dispute with the US weighed heavily on the manufacturing sector in May. Activity contracted at the fastest pace since September 2022, with exports from smaller firms slowing. The slowdown in manufacturing prompted speculation that further stimulus measures will be implemented by Beijing in the coming weeks. On a more positive note, the services sector saw an acceleration in growth last month.

Headlines regarding trade deal negotiations between Japan and the US suggested that talks were progressing in a positive manner, with both sides keen to finalise a deal before the upcoming G7 summit later this month. Economic data came in weaker than expected, with household spending falling by 0.1% year-on-year in April, slowing from the 2.1% increase seen in March. Real wages also fell by 1.8% in April, which points to a squeeze on consumer incomes, given that headline inflation during the month was 3.6%.

GBP / EUR – Current 1.1871 Previous 1.1860

The Pound rose to the highest level against the US Dollar since February 2022 last week, gaining 0.51%. Against the Euro, the Pound saw a modest increase of 0.09%.