The Davy Digest - 3rd June 2025

US markets were up 1.9% last week, concluding the S&P 500’s strongest month since 2023 and moving the index back into positive territory for the year. Trade policy continued to dominate headlines, as legal challenges over the implementation of Trump’s tariffs continued to mount. The Core Personal Consumption Expenditures Index – the Federal Reserve’s preferred measure of inflation – fell to 2.5% year-over-year in April, reaching its lowest level since 2021. Meanwhile in Europe, consumer confidence came in at -15.2, in line with consensus, as policy uncertainty continued to weigh on morale. In Asia, May’s Tokyo core inflation print came in above consensus at 3.6%, reaching a two-year high and supporting the possibility of further rate hikes there.

Last week's highlights

	Q1 GDP (29/05) – Second estimate revised upwards to -0.2% annualised for Q1 Core Personal Consumption Expenditures (30/05) – Fell to 2.5% year-on-year in April
	Consumer Confidence (27/05) – In line with consensus at -15.2
	BoE's Lombardelli speech (28/05)
	Tokyo Core CPI (29/05) – Increased to 3.6% year-on-year for May (vs 3.5% expected) China NBS Manufacturing PMI (31/05) – Increased to 49.5, in line with consensus

This week, the headline event will be Thursday’s European Central Bank meeting, with Christine Lagarde expected to deliver a 25 basis point cut. Elsewhere in Europe, we will see a preliminary print for May’s Eurozone Harmonized Index of Consumer Prices. In the US, Purchasing Manager Index (PMI) surveys for both manufacturing and services will be released, as well as a range of labour market indicators. This includes nonfarm payrolls, job openings, and the unemployment rate. PMI surveys will also be released in both China and the United Kingdom.

What's on the radar

	ISM Manufacturing PMI (02/06) ISM Services PMI (04/06) Nonfarm Payrolls and Unemployment (06/06)
	Eurozone Preliminary Inflation (03/06) ECB Meeting (05/06)
	S&P Manufacturing PMI (02/06) S&P Services PMI (03/06)
	China Caixin Manufacturing PMI (03/06) China Caixin Services PMI (05/06)

Chart of the moment

Tariffs, butts, and maybes

Source: Bloomberg, Davy as of 03/06/2025

• Last week, there was further uncertainty over US trade policy, as doubt was cast over Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose his tariffs.
• The IEEPA was the legal basis for the retaliatory tariffs implemented on Liberation Day, as well as the additional tariffs levied against China.
• If IEEPA tariffs were abandoned, the effective tariff rate in the US would decrease by 8.2%.
• Appeals and legal challenges have allowed the IEEPA tariffs to remain in place for now, and even if they are eventually overruled, alternative avenues still exist for the implementation of further tariffs.