US Economy: Weekly Commentary – June 01, 2026

US Market Review

U.S. yields fell as the curve flattened. Equities rose broadly led by small caps and tech. Oil dropped sharply on easing geopolitical risk. Dollar weakened. Gold gained. Bitcoin declined.

U.S. Treasury yields declined during the week. The yield curve flattened further, with the 5–30 year spread narrowing to 84.4 basis points, its tightest level since May 2025. The move was driven by selling pressure in shorter-dated maturities, which are more sensitive to Federal Reserve policy expectations. Markets are increasingly pricing in higher-for-longer interest rates following renewed inflation concerns linked to geopolitical tensions and a reassessment of the Fed’s stance, while structural pressures from fiscal deficits and AI-related capital investment continue to support elevated long-end yields.

Equity markets closed the week higher, led by micro-cap stocks up 2.33% and small caps up 1.85%, while large caps rose 1.50%. The Magnificent Seven gained 1.75%. Sector performance was mixed, with technology up 5.90%, materials up 1.70%, and consumer staples up 1.45%, while energy fell 5.40% and consumer discretionary declined 2.25%. The global trillion-dollar corporate universe is increasingly concentrated in semiconductors, including Nvidia, Broadcom, TSMC, Samsung Electronics, SK Hynix, and Micron, underscoring the sector’s expanding weight in global equity markets.

In currency markets, the U.S. dollar fell 0.49% against the euro. Commodity markets saw notable volatility, with WTI crude oil down 9.53%. The decline was driven by rising expectations of a potential de-escalation in geopolitical tensions between the U.S., Israel, and Iran, which raised the prospect of a possible ceasefire and a partial normalisation of flows through the Strait of Hormuz, a critical chokepoint for roughly one-fifth of global oil trade. Despite the geopolitical narrative, physical market conditions remained relatively tight, with inventories still drawing and shipping constraints through the strait not fully resolved. Nevertheless, speculative positioning shifted sharply toward lower risk premia, accelerating the selloff. Gold rose 1.32%, while Bitcoin declined 2.60%.

US Market Views Synopsis

US inflation remains above target, supporting a cautious Fed stance, while weaker consumer spending, falling real incomes, and softer investment point to slower growth ahead.

US inflation data for April showed slightly softer monthly price increases, but underlying inflation remains elevated, with headline PCE rising 3.8% YoY and core PCE reaching 3.3%, reinforcing expectations that the Federal Reserve will maintain a cautious stance on interest rates. At the same time, economic growth is weakening, as first-quarter GDP was revised down to 1.6% and consumer spending remained subdued. Higher energy costs are eroding household purchasing power, with real disposable incomes declining for three consecutive months and the savings rate falling to 2.6%. Business investment also softened, suggesting slower economic activity ahead despite persistent inflationary pressures.

Inflation

US growth is softening as GDP and consumption slow, real incomes fall, and savings drop, while inflation stays elevated and business investment and orders weaken overall.

US inflation data for April showed a slightly softer-than-feared profile in headline terms, but underlying price pressures and their impact on real spending power remain increasingly visible. The US PCE price index rose 3.8% YoY, its highest level since May 2023, while core PCE increased 3.3% YoY, marking its strongest reading since autumn 2023. Although monthly gains came in marginally below expectations, at 0.4% for headline PCE and 0.2% for core versus 0.3% consensus, the core measure remains well above the pace consistent with returning inflation to the Federal Reserve’s 2% target. This reinforces expectations that policymakers will maintain a cautious, hawkish stance over the summer.

At the same time, economic momentum is softening. First-quarter GDP was revised down from 2.0% to 1.6%, driven by weaker consumer spending and a larger drag from inventories. Real household consumption rose just 0.1% MoM in April, signalling a subdued start to the second quarter, given that consumption accounts for around 70% of US activity. Rising energy costs are increasingly eroding purchasing power, with real disposable incomes declining for three consecutive months and the household saving rate falling to 2.6% from 3.2% in March, well below long-run norms. This shift risks reinforcing a K-shaped consumption pattern, where higher-income households remain resilient while lower- and middle-income groups face increasing pressure. Elsewhere, durable goods orders were distorted by a surge in Boeing aircraft orders, but non-defence capital goods orders excluding aircraft, a key proxy for business investment, fell 1.1% versus expectations of a 0.4% rise.

We expect that US growth will continue to soften in the future as rising energy costs, weaker real incomes, and declining savings weigh on consumption, while inflation remains elevated and business investment shows signs of cooling.