U.S. Indices closed ultimately closed Monday’s session in the green with the NASDAQ leading the gains as outperformance in the Tech sector kept Indices bid once cash equity trade was underway. The majority of sectors were green, but there was clear outperformance in Energy and Tech. Energy stocks were supported by a revival in oil prices, largely sparked by geopolitical escalation over the weekend. Ukraine struck Russian bombers with drones well inside Russia, meanwhile, Iran said the US proposal for a nuclear deal is “imaginary”. However, reports in late trade via Axios suggested the US would allow limited, low-level uranium enrichment. On the supply side, the OPEC 8 agreed to hike production by 411k BPD over the weekend, as was widely expected last week, but also there had been reports there would be discussions for a larger output increase, albeit this did not come to fruition. T-Notes were lower across the curve in a steeper fashion with the increased trade uncertainties bolstering term premium (back and forth US/China commentary, Trump and Xi to speak this week; Trump raising steel and aluminium tariffs; Trump reportedly requesting a “best offer” from nations by Wednesday). T-Notes did bounce in the wake of the data, which saw a weak ISM Manufacturing PMI report and weak Construction Spending. However, the upside faded once the Atlanta Fed updated their Q2 GDP model, which saw a chunky revision higher to 4.6% from 3.8%, seeing the earlier strength reverse with T-Notes settling around lows. Also, Fed’s Goolsbee (2025 voter) was warning the soft inflation prints seen so far may be the last before the tariff impact of tariffs kicks in. In FX, the Dollar was sold on trade uncertainties while antipodes were supported by the turnaround in US equities, as well as firmer base metal prices on Trump’s tariff lift on steel and aluminium. Fed Member Goolsbee spoke on inflation, noting that so far they have had excellent inflation reports and surprisingly little direct impact of tariffs, although he does not know if that will remain true in the next 1-2 months. The Chicago Fed President still thinks that underneath all the tariff ‘dirt in the air’, rates can come down over 12-18 months. He also still believes that if they can get past this bumpy period, the Fed’s dual mandate looks pretty good. He also noted that he is a little “gun-shy” about arguing that tariffs will have a transitory effect on inflation, warning the recent PCE inflation print may have been the ‘last vestige’ of pre-tariff impact. The US ISM Manufacturing PMI for May fell to 48.5 from 48.7, and beneath the expected 49.5. Prices paid marginally dipped to 69.4 from 69.8, while new orders and employment both remained in contractionary territory but ticked higher to 47.6 (prev. 47.2) and 46.8 (prev. 46.5), respectively. Inventories fell beneath 50 to 46.7 from 50.8, while production, supplier deliveries, and backlog of orders rose. New export orders and imports tumbled to 40.1 (prev. 43.1) and 39.9 (prev. 47.1), respectively. Within the respondents comments, once again, many noted the impacts of tariffs with one saying, ““Government spending cuts or delays, as well as tariffs, are raising hell with businesses. No one is willing to take on inventory risk”. On the data set, Pantheon Macroeconomics notes manufacturing is muddling through tariff-related disruptions for the time being rather than falling apart, but the sector remains under intense pressure, with marked increases in the prices of many goods likely in the pipeline. Overall, survey data continues to disappoint but it is yet to be seen whether it will filter through to the hard data remains to be seen. U.S. Construction Spending declined by 0.4% in May, adding on to the 0.8% decline seen in April (revised down from -0.5%), well beneath the analyst consensus of +0.3%. On a Year-to-Date basis, construction spending amounted to USD 660.2 billion, 1.4% above the USD 651.3 billion for the same period in 2024. Private construction fell 0.7% M/M, with residential -0.9%, and nonresidential construction -0.5%. Public construction, however, rose 0.4%, with educational construction -0.1%, with highway construction +0.5%. Following the report, analysts at Oxford Economics noted that “The baseline forecast has already anticipated meaningful weakness in residential investment and business structures investment in Q2”. OxEco explains that construction outlays feed into GDP primarily via residential investment and business structures investment. The consultancy expects residential investment to decline by 2.8% annualised in Q2, representing a 0.1ppt drag on Q2 growth. Elsewhere, Oil closed 2.85% higher while a weaker Dollar saw Gold end Monday with a gain of 2.2%.
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