US Economy: Weekly Commentary – May 11, 2026

US Market Review

Treasuries fell on Japan-related selling pressure, lifting yields. Tech-led equities rallied while energy lagged. Dollar weakened, oil dropped on easing geopolitical risks, while gold and bitcoin gained.

Treasury markets were mixed over the week, with notable declines concentrated at the long end of the curve. Evidence continues to point to foreign flows, particularly from Japan, as a potential driver of additional selling pressure. Federal Reserve custody holdings of US Treasuries fell by $8.7 billion to $2.73 trillion for the week ending May 6, consistent with estimates that Japan may have financed roughly $54.7 billion in yen intervention through US bond sales, according to Bloomberg. Given Japan’s position as the largest foreign holder of US government debt, continued liquidation of Treasuries to defend the yen could add incremental upward pressure on US yields at a time when fiscal concerns and higher energy prices are already supportive of elevated rates.

Equity markets extended their upward momentum, with performance led decisively by the technology sector, which gained around 8.5% over the week. The Magnificent Seven also outperformed, rising 4.1% and helping drive broader index gains. In contrast, defensives and cyclicals lagged, with energy falling 5.35% and utilities declining 3.9%. Small- and micro-cap equities posted moderate gains of 1.75% and 2.05%, while large-cap stocks rose 2.35%, reflecting continued breadth beneath the leadership of large technology names.

In currency and commodity markets, the US dollar weakened 0.55% against the euro. WTI crude oil fell 6.4%, driven by easing geopolitical tensions following reports of progress in US–Iran negotiations toward a potential agreement. This reduced fears of supply disruptions in the Middle East, particularly around key transit routes such as the Strait of Hormuz, prompting a sharp unwinding of risk premiums despite ongoing inventory drawdowns. Gold rose 1.5% over the week, while Bitcoin advanced 2.98%, reflecting continued strength in alternative assets amid shifting macro and risk sentiment.

US Market Views Synopsis

US labour market shows resilient payrolls but weakening underlying indicators. Consumer sentiment remains subdued due to persistent inflation pressures, elevated expectations, and fragile household purchasing power.

US labour market data continue to show headline resilience, with nonfarm payrolls rising 115,000 in April, above expectations, following an upwardly revised March gain, while unemployment held at 4.3% and wage growth moderated to 0.2% MoM. However, underlying indicators point to softening conditions, including a decline in labour force participation to 61.8%, a fall in household employment, and reduced full-time jobs alongside rising part-time work. Hiring remains concentrated in a few sectors such as healthcare, transport and retail, while information and federal government employment weaken, and softer private surveys and ADP data contrast with official figures. Consumer sentiment remains subdued, with only marginal changes overall, as deteriorating current conditions reflect persistent price pressures, especially energy costs, despite slightly improved expectations. Inflation expectations eased modestly but remain elevated relative to pre-pandemic norms, indicating caution. Overall, labour and sentiment data suggest resilience in headline figures but underlying fragility in demand, income growth, and consumer confidence, pointing to gradual economic softening ahead.

Labour Market

US payrolls again beat expectations. Weakening participation, falling full-time employment and stagnant real incomes suggest underlying labour-market fragility. Despite resilient headline hiring data.

Back-to-back upside surprises in US payrolls data represent an important win for an economy facing mounting geopolitical and economic uncertainty. Nonfarm payrolls increased by 115,000 in April, well above consensus expectations of 65,000, following an upwardly revised 185,000 gain in March. This marks the first consecutive monthly acceleration in hiring in a year. The unemployment rate remained steady at 4.3%, while average hourly earnings rose a softer-than-expected 0.2% MoM, helping to ease concerns that labour-market tightness could fuel renewed wage-driven inflation. However, the details beneath the headline figures were less convincing. Labour force participation slipped to 61.8%, the household survey showed employment falling by 226,000, and full-time employment declined sharply as part-time work increased. Revisions to previous months also left payroll growth 16,000 lower than previously reported, while the large contribution from the BLS birth-death adjustment model raises the possibility of future downward revisions.

Hiring also remains heavily concentrated in a handful of sectors, notably healthcare, transportation and warehousing, and retail, while information-sector and federal government employment continue to weaken. More importantly, the resilience in payrolls data is increasingly at odds with softer private-sector demand indicators, weaker ADP and ISM employment readings, and deteriorating consumer confidence regarding the labour market. For markets and the Federal Reserve, moderating wage growth may support expectations for steady interest rates. Yet the same trend also highlights a more concerning backdrop of stagnant real household disposable income growth and weakening consumer purchasing power. With job openings now below the number of unemployed Americans and elevated energy prices continuing to pressure inflation, consumers appear far less optimistic about the economy than the headline employment figures suggest.

We expect the US labour market to gradually soften, with weaker participation, cooling wage growth and stagnant real incomes offsetting headline payroll strength.

Consumer Sentiment

Consumer sentiment was mostly unchanged, with weaker current conditions driven by high prices and fuel costs, while inflation expectations eased slightly but remained well above pre-pandemic levels.

Consumer sentiment was broadly stable this month, edging down only marginally from April and remaining near its weakest level since mid-2022, reflecting continued pressure on household finances and limited improvement in overall economic confidence. While expectations for future conditions ticked up slightly, this was offset by a noticeable deterioration in current conditions, which fell about 9% as consumers reported heightened concern over persistent price increases and reduced purchasing power. Inflationary pressures remained central to sentiment, with rising gasoline prices emerging as the most frequently cited concern (mentioned by about one-third of respondents), alongside tariffs, which were noted by roughly 30%. Expectations for real income continued their downward trajectory that began in March, reinforcing perceptions of weakening financial momentum. Broader geopolitical tensions, particularly in the Middle East, were not seen as materially supportive of sentiment unless they translate into sustained improvements in energy supply and fuel prices. Inflation expectations showed a modest easing, with the one-year outlook declining from 4.7% to 4.5%, though still well above pre-conflict, pre-pandemic, and 2024 levels, while long-run expectations dipped slightly from 3.5% to 3.4%, remaining elevated compared with historical norms, suggesting that consumers continue to anticipate persistently above-average inflation over both near- and longer-term horizons.

We expect that consumer sentiment will stay weak in the near term as high prices continue to pressure households, with inflation expectations likely remaining elevated and limiting recovery in confidence.