Market Sentiment Tracker: What If This Is as Good as It Gets?

The data now points to a global economy drifting rather than adjusting. The U.S. is holding on to labor strength, but the shift in business spending and services activity suggests momentum is already slipping. Europe is cutting rates into a slowdown, not out of one—an admission that the post-pandemic rebound never reached escape velocity. China continues to post surpluses, but they reflect internal weakness, not strength. Across all three, the policy response is either behind the curve or constrained by design. This is no longer about inflation management. It’s about economies that are running out of organic drivers, with little sign that the next leg of growth is in sight.

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United States

The U.S. labor market remains firm on the surface. Nonfarm payrolls added 139K in May, with private sector hiring at 140K. Wages rose 0.4% month-on-month, accelerating from April, and job openings ticked up to 7.391 million. This tells you demand for labor is still present, and wage pressure hasn't eased meaningfully. But elsewhere, conditions are deteriorating. Factory orders dropped 3.7% in April. Core capital goods orders, stripping out defense, fell 7.5%—a clear indication that investment appetite is fading. The ISM Services PMI fell below the 50-mark to 49.9, suggesting service-sector output is beginning to contract. At the same time, the labor force participation rate slipped to 62.4%, and Challenger-reported job cuts surged 47% from a year ago. This combination—strong backward-looking labor prints against weak forward-looking investment and production—points to late-cycle dynamics. Firms are still hiring off strong balance sheets, but not spending into future growth. The Fed will be wary of cutting rates into rising wages and stable unemployment, but the turn in business activity is already underway.

Europe

The ECB’s 25bps cut to the deposit rate (now 2.00%) comes at a time when real activity is weakening across core economies. Eurozone GDP rose 0.6% quarter-on-quarter—double expectations—but it’s not supported by underlying momentum. Industrial production in both Germany and France fell 1.4% in April. Services are also struggling: the Eurozone Services PMI came in at 49.7, with Germany at 47.1 and France at 48.9—levels consistent with contraction. Producer prices are falling rapidly. The Eurozone PPI dropped 2.2% month-on-month in April, accelerating the deflationary trend. This signals eroding pricing power at the firm level, which, combined with falling output, suggests a profit squeeze is developing. The ECB is easing into a demand vacuum, not a credit crunch. The risk is that the rate cut doesn’t reflate demand but instead further flattens yield curves and compresses bank margins—limiting the transmission mechanism. Unless fiscal support picks up or external demand surprises, Europe is likely to drift sideways through the second half.

China

China’s economy continues to show the hallmarks of an uneven, externally driven expansion. The trade surplus widened to $103.2 billion in May, helped by a 4.8% year-on-year rise in exports. But that export growth is slowing—down from 8.1% the prior month—while imports fell 3.4%, pointing to persistent weakness in domestic demand. Deflationary pressure is deepening. Consumer prices declined 0.1% year-on-year, and the Producer Price Index dropped 3.3%, marking nearly two years of negative factory-gate inflation. These aren’t base effects—they reflect chronic excess capacity and muted household spending. The private sector remains cautious, with firms discounting aggressively and consumers holding back. Services activity, as captured by the Caixin PMI, edged up to 51.1. That shows some resilience in consumption-facing sectors, but it’s marginal and not gaining momentum. Without support from real estate or broader stimulus, services alone can’t carry growth.

The policy stance remains restrained. Credit conditions are loose but not expansive, and fiscal policy has yet to shift meaningfully. Beijing is choosing stability over stimulus, but at the cost of reacceleration. The current trajectory risks locking the economy into a low-nominal-growth path, where private investment stays weak and deflation expectations become entrenched.