Labor Data Eases Recession Concerns

Yields soar with markets risk-on. Treasurys sold-off and equities rallied in the aftermath of today’s labor data, which revealed stronger than expected hiring and subdued unemployment in May. The data calmed nerves about an abrupt recession, pushing yields higher by 8-13 bps across a flattening curve. The 2-year yield closed at 4.04% and the 10-year yield is now 4.50%, with the spread between the two (~46 bps) well below the multi-year high (64 bps) reached in April. Meanwhile, the S&P 500 climbed 1.03% and the NASDAQ rose by 1.20%, rebounding after yesterday’s Tesla-driven decline.

Labor data delivers a positive surprise. Payrolls growth exceeded expectations in May per data released today, offering a jolt of optimism to markets watching closely for signs of cracks in the U.S. economy. Nonfarm payrolls grew by 139,000 during the month, the 2nd largest monthly increase in 2025, vs. expectations of a more muted 126,000 advance. The unemployment rate remained steady at 4.2%, as expected, for a 3rd consecutive month, and wages grew by 0.4%, 0.1% higher than expected and double April’s pace. There were some areas of concern despite the strong headline results. While certain service subcategories, leisure and hospitality drove hiring growth, areas exposed to tariffs such as manufacturing and business services saw weaker results. Still, the results were broadly viewed as a sign that employers remain reluctant to lay off workers and slow hiring before more clearly understanding the extent to which tariffs will remain in effect over the longer term, and in turn, their economic impact.

US and China to resume negotiations in London. The US and China appear set to hold renewed trade talks on June 9th after President Trump labelled his phone call with President Xi “very positive” yesterday. US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and US Trade Representative Jamieson Greer will meet with China, and Trump said that “the meeting should go very well.” The news spurred optimism after relations between the two nations soured over the past few months, with both accusing the other of breaking terms of the trade deal. The US had expressed concerns over the lack of rare-earth exports, which are crucial for automobiles and defense systems.