The desk believes that the current macroeconomic environment, characterized by frequent policy shifts and tight trading ranges, necessitates a tactical approach to trading. Per the full note from MUFG EMEA, George Goncalves emphasizes that these dynamics have kept both stocks and rates at local highs, while the upcoming NFP jobs report could significantly influence Fed policy options. With no high-impact events on the calendar in the next 30 days, traders should remain vigilant for any shifts in sentiment that could arise from the labor data release.
What the desk is arguing
MUFG's commentary underscores a period of volatility and uncertainty in the US macro landscape, aptly termed 'The Great Whiplash.' The constant changes in policy and trade dynamics create tight trading ranges, suggesting market participants are grappling with conflicting signals while navigating local highs in stocks and rates.
Supporting this perspective, Goncalves previews the upcoming Non-Farm Payroll (NFP) jobs report, which is set to play a pivotal role in shaping market expectations for Fed policy. The desk argues that a tactical mindset will be essential, as anything from a stronger labor market report to unexpected wage growth could significantly impact monetary policy outcomes, highlighting the need for investors to remain agile in their strategies.
Where it sits in our coverage
Our consensus target remains at 1.075 with a firm spread that reflects the current macro uncertainty. This outlook largely aligns with MUFG's emphasis on being tactically minded in the face of shifting economic dynamics.
JPMorgan: Target of 1.10 for Mar-26, aligning with the cautious but optimistic outlook for growth.
Goldman Sachs: Target of 1.08 for Mar-26, reflecting a similar view on the importance of upcoming data.
Citi: Target of 1.06 for Mar-26, which shows slight divergence, indicating more cautious sentiment.
How other firms see it
Overall, there is a mixed sentiment among market players regarding future developments. While some firms echo MUFG's cautious approach, others maintain a more pessimistic outlook.
JPMorgan: Aligned stance, suggesting confidence in stable growth.
Goldman Sachs: Aligned stance, with targets just below our consensus.
Citi: A slightly contrary stance, indicating a more conservative view on market movements ahead.
01Current US macro conditions characterized by uncertainty and tight trading ranges.
02Upcoming NFP report critical for shaping Fed policy expectations.
03Tactical positioning recommended due to volatile market conditions.
Market implications
The ongoing policy shifts and uncertainty could lead to heightened market volatility, particularly around key data releases. Investors may need to adapt quickly as labor market indicators emerge, potentially influencing interest rate strategies and broader market sentiment.
Risks to this view
The primary risk includes unexpected labor market outcomes that could alter Fed policy trajectories. Additionally, geopolitical developments or renewed trade tensions could further complicate the economic landscape, leading to abrupt market reactions.
Welcome to the MUFG Global Markets Podcast. I'm John Cook, and I'm joined today by George Goncalves, MUFG's Head of U.S. Macro Strategy.
It's Tuesday, June 3rd, 2025. Welcome back to the podcast, George. Hi, John.
Good to be back, as always. Yeah, good to have you. It's been a bit, maybe about a month, plenty to catch up on.
The month has flown by. I feel like we haven't said this in a while, but for a while it felt like the hours were days, the days were weeks, and the weeks were years. It's feeling a lot like that right now.
Oh, yeah. I mean, it makes you think of that one quote that there's decades where nothing happens, and then there's weeks where decades happen. Not that I want to quote Lenin, but his saying really is appropriate for the time period that we're in.
It's a good quote, for sure, and very appropriate. Weeks have been days, weeks, whatever, I've been unrelenting on the news front side. So let's get into it.
Any recap, as I alluded to since our last episode, just kind of off the top of my head, you got a truth with China on the trade front, only to find out that talks aren't going well with some heightened rhetoric from both sides over the weekend. The U.S. lost its last AAA rating. I believe, as you remember in the chat, you called it the day the U.S. lost its last AAA, which is sad but poetic.
You had the U.S. Court of International Trade blocking Trump's tariffs, only to have an appeals court shortly thereafter grant the administration a stay, which effectively allows the collection of tariffs to continue until further notice. Obviously, a lot to see play out on the Court of Appeals front and potentially Supreme Court front there.
The big, beautiful bill passed the House by a single vote. It's in the Senate's hands now. I'm sure I forgot something there.
Oh, yeah, there was a Fed meeting, should have thought of that, and the minutes which we more recently got discussed the recession risks top of mind. Plenty to discuss rather, but your team, not surprisingly, covered many of these topics in your recent monthly entitled U.S. Macro to Markets Outlook at the Great Whiplash, and in the piece, I'll sort of paraphrase briefly, but you said there have been many policy shifts plus low conviction that sort of led to a stop-start but go nowhere market.
Tell us what you mean about that. Yeah, no, I was actually – one of the things I always try to do is like all authors and producers of reports, we try to come up with a kind of catchy title, and it was just kind of kept thinking like feeling whiplash over the last six or eight weeks, and I think a lot of investors probably and those listening probably can relate to the idea that we're kind of reacting to this news flow back and forth, tariffs on, tariffs off, being contested, how other countries are perceiving things, how they're reacting, how markets are digesting. But in the grand scheme of things, if you kind of zoom out, even though we're kind of bobbing and weaving our heads moving back and forth, we really haven't made a lot of progress.
I mean, rates have been in a higher but decent range, not a really wide range, higher yields overall, equities have climbed the wall of worry or the wall of tariff, and then have gotten stuck and have had inability to make a new high and kind of still bouncing around. Credit spreads got repinned, but really a lack of follow-through because where do you go from here after unwinding the sort of credit fears in early April? And that to me was what kind of captured the idea of this sort of like the policy shifts are making us react to all these headlines and the markets are – in that sort of environment, it's a low conviction world because you just don't know where we stand and what's going to be binding and what may happen next.
And so we're like super tactical, tacticians, not strategists more than anything else. And I think like given all of that, there is a lot to kind of at least slowly kind of unwind a little bit. I do think even though the downgrade was the last downgrade of the AAA rating, as symbolic as that might be, it did at least bring back into the limelight concerns around the fiscal outlook and that's obviously caught the market's attentions.
This is not just a U.S. phenomenon, but long-term rates have been rising around the world, which is for the first time other bond markets are potentially competing with the Treasury market, especially when you adjust for currency hedges and things like that out of like Japan and Europe. And so I do think that that – although the event itself is not a major surprise to markets and was like digested so quickly, I do think it does play a role of like in focusing our attention back on this fiscal situation, especially with the kind of interplay between the fiscal goals and aspirations of the big beautiful bill and how that relates to the tariffs. Are the tariffs a source of revenue?
Was that in the back of the mind of policymakers when they were crafting the bill? Were they thinking that they were going to get some tariff revenue even though it's not scored that way or presented that way in terms of the congressional process? I'm sure that that has had some influence in maybe the more fiscally conservative Freedom Caucus folks.
And now it's with the Senate. We'll see if tariffs are not binding or maybe they're not going to be as fully binding. Do we get the revenue that we need to kind of pay for some of these tax cut extensions?
So yeah, I think like all this stuff is related. And then meanwhile, the tariffs themselves, if it changes the nature of how foreign investors invest back into U.S. Treasuries, if there's less capital flows coming back in, maybe we lose the benefit of what tariffs mean altogether if we have less buyers from foreign investors and therefore long-term rates have to be higher just to get investors to buy.
So like all this stuff is happening and it creates like this kind of quagmire where we kind of are stuck in these tight ranges without a clear direction from here. I was super comprehensive, George. I'm impressed.
I think that definitely got us up to speed over the last weeks or months, if you will. So that's where we are. Looking ahead, again, I'm sure we'll get more tariff headlines, more starts, more stops or whatever.
But what's a known unknown at this point is the labor market. So we got the jolts data today, which are some interesting and conflicting signs of strength and weakness there, and we have the always important employment report on Friday. Why don't you take our listeners through what to expect for that report and perhaps some of the other key data releases this week?
Yeah, yeah. So I think like I kind of alluded to in the first part, like we're now like super tactical. I think most market participants are going to just kind of take it one data point at a time and not try to be too forward-looking because of all this uncertainty.
But the jobs market really is like the final piece of the puzzle to kind of really determine if we are going to go into an economic slowdown. Were we already in an economic slowdown? Are we going to be more in a malaise environment or perhaps all the bad news is behind us?
Maybe as a kind of, just to kind of refocus the attention back to our monthly, which I encourage folks to go take a look at, we did take down our recession odds a little bit. The de-escalation of the tariffs, at least for now, and perhaps them not being as bad as people feared, perhaps we won't see as much damage to the economy. So we've taken down our recession odds a little bit, but at the same time, we've increased our stagnation odds, which is kind of like harking back to the pre-pandemic world.
For a long time, we've been, collectively, we have been thinking, the marketplace has been thinking that this is a new world paradigm, that it's more an inflationary environment. But what if, in fact, we go back to the old world where the technology inherently is deflationary, AI could end up displacing a lot of work and or maybe be a productivity tool, which then is deflationary. Either way you cut it, maybe we go back to that old world where we don't have to fall into a recession, but we go back to a more of a kind of optimal or suboptimal growth where some industries are growing, some aren't.
As you know, and as I've been kind of chronicling for a long time, the idea that a lot of the jobs have been government jobs, and if at least that's offline for a bit, and the private sector is retooling as we're going through this sort of changes, and maybe not really in a rush to hire as they were before, there's less immigration. Like the labor market should start to see, we should start seeing some of that weakness come through. And we haven't had a real markedly drop off yet in jobs growth, but based on the average that we've seen in the number of years before, like of about 200,000, we've dropped into the like 130,000, 140,000 jobs per month.
Anything around there, I think that the market's not going to overreact when it comes to this Friday's number, which will be for the May NFP. But at some point, like we'll probably do, and I know I've been saying that for quite some time, that there's inherent weakness in the labor market, and a lot of the supporting factors are behind us. There isn't that sort of fiscal impulse or thrust like before, and like what industries are really hiring hand over fist, and getting people in place, and you know, this has a very similar feel to what took place heading into the election last year, where businesses went to the sidelines to kind of see the outcome of the election.
In many ways, I think businesses have gone to the sidelines waiting to see the rules of the road for tariffs, and how the economy fares going forward. So I don't know, I'm leaning on the more bearish side, but you know, we'll see what happens. The key thing to look out for will be the unemployment rate more so than anything else.
That plays, you know, the biggest role for the Fed's thinking, I think, going forward. I'm not as terribly concerned about inflation in the near term, especially because tariffs aren't fully binding yet, and so I do think that if the unemployment rate were to tick up again to like 4.3, it's getting close to the Fed's year-end target. The closer it gets and the sooner it gets there, it's going to remind the Fed that they're behind the curve, kind of like they were last year.
And so in a weird deja vu kind of, it almost feels like similar to last year, but for different catalysts, and we're entering into the summer period with all these unknowns, the jobs market decelerates, it gets the Fed on side, and they're going to have to ease. I think they should be easing already, but you know, they're obviously taking a wait and see approach, but this jobs number might get them over the edge. Maybe not for the June meeting, but maybe for July, September.
Okay, so focus on jobs and potential labor market weakness. It sounds like you're suggesting that we can maybe look through some tariff-related inflation, or perhaps it will be less than some fear, just kind of benchmarking things. It looks like we're priced for about almost exactly two cuts through the end of the year, so it sounds like you think that that's likely, and I think from your tone, maybe we get even more than that.
Is that about right, George? Yeah. I mean, our house view is kind of oscillated between three and four lately, and we're very dovish compared to the street, and compared to market pricing, when the market was pricing in four, maybe that was a little bit too much too soon, and then the market priced in less than two.
That was a little bit too little, in my opinion. The sweet spot probably is three, but at a minimum, the Fed should deliver two, and we're going to find out more, obviously, and we'll most likely do a podcast before the next Fed meeting with our Fed preview by then. Sounds good, and if you have not already, I would encourage our listeners to check out the latest Macro to Markets Outlook entitled, again, The Great Whiplash for more details on a number of the topics that George discussed on this episode, and if you are still not getting George's strategy reports, check out the MUFG Research Portal at www.mufgresearch.com, where you can find all of your favorite MUFG research, as well as sign up to have it conveniently delivered to your inbox.
Great stuff as always. Thanks for coming on the podcast, George. Thanks for hosting as always, John.
And thank you for listening to the MUFG Global Markets Podcast. Like, review, and subscribe on Apple, Spotify, or wherever you get your podcasts, and reach out to your MUFG sales rep for any further information. Check back soon for more insights from the Global Markets Research Team.