A better-than-expected employment report in the US eased fears of a severe economic downturn, pushing expectations of afirst Fed rate cut back one meeting to July and lowering total expected cuts in 2025 from four to three. Sovereign bond yield srose on both sides of the Atlantic following the report and stock markets rallied.
Risk-on sentiment was further boosted by news of progress in certain trade deals with the US. Japan's chief negotiatorremarked he expected to have a deal finalized by June. Other reports suggested China is preparing a list of goods that wouldbe exempted from its 125% tariff as it's evaluating the possibility of beginning trade talks.
Elsewhere, euro area headline inflation in April was unchanged at 2.2%, but core inflation rose from 2.4% to 2.7% as servicesinflation picked up during the month. Futures markets adjusted interest rate expectations, reducing the number of additionalcuts in 2025 from three to two, implying a depo rate of 1.75% by year end.
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