News of the week summary - 08/06/2025

Signs of a cooling labor market prompt Fed rate cut debate

Fresh employment data from the United States points to a softening labor market, prompting renewed political pressure on the Federal Reserve to cut interest rates. President Trump intensified his public criticism of Fed Chair Jay Powell, demanding a full percentage point cut to borrowing costs following the latest job figures. In a post on his Truth Social platform, Trump argued that the Fed was acting too slowly and claimed high rates were costing the country “a fortune” in debt service payments.

The May report from the Bureau of Labor Statistics (BLS) showed that 139,000 jobs were added, slightly ahead of expectations but down from 147,000 in April. March’s data was revised lower, bringing the average monthly job creation in 2025 to 124,000. That’s a clear slowdown from 2024, when the monthly average stood at 168,000. The unemployment rate remained stable at 4.2%, but analysts noted that headline figures masked a weakening trend. With revisions pointing to slower hiring earlier this year, the overall trajectory of job growth is flattening.

While the number released beat forecasts, markets were less enthusiastic once deeper figures were examined. The downward revisions show fewer people being hired than previously thought, which may signal a more fragile economy than the headline numbers imply.

Trump’s push for a rate cut follows the European Central Bank’s decision to lower its key interest rate by another quarter-point, its second cut in a year, as it tries to navigate slowing global growth and fading inflation. Trump has criticized the Fed for being out of sync with international peers, especially amid concerns that his own tariff policies, which raise import taxes on foreign goods, could boost consumer prices (inflation) while simultaneously dampening demand and growth.

Despite political pressure, the Fed has held its key interest rate steady in recent months, citing uncertainty over the future path of inflation and economic activity.

Interestingly, financial markets had a mixed reaction to the job report. Treasury yields (which move inversely to bond prices) edged up as traders adjusted their expectations, betting that the Fed might now deliver fewer rate cuts in 2025. That’s because a labor market that’s not collapsing gives the Fed more leeway to remain cautious on inflation. Futures markets still reflect expectations of one or two rate cuts this year, but the likelihood of a more aggressive easing has diminished. Meanwhile, the S&P 500 rose 1% in early trading, suggesting investors saw enough stability in the numbers to support continued optimism in equities.

Adding a final twist, the report noted a drop in public sector hiring, partly attributed to cost-cutting under the now-defunct Department of Government Efficiency, once led by Elon Musk. This unusual government downsizing may have contributed to the weaker job gains in May.

Switzerland wants stricter capital rules for UBS

The Swiss government has unveiled plans to significantly tighten capital requirements for UBS in an effort to prevent another systemic banking failure like Credit Suisse’s collapse in 2023. Under the proposed reforms, UBS would be required to fully capitalise all its foreign subsidiaries, meaning the Swiss parent company must hold equity equivalent to 100% of the capital in its overseas arms. This is a substantial increase from the current rule, which only mandates a 60% match. The proposal would force UBS to raise around $26 billion in common equity tier one (know as CET1) capital, the highest-quality form of bank capital used to absorb losses.

After accounting for an allowed $8 billion reduction in AT1 bonds (a riskier form of capital that absorbs losses but under different conditions), UBS would still need a net increase of $18 billion in capital considered capable of keeping the bank operating under stress. The Swiss Federal Department of Finance (FDF) justifies the move by pointing to the weaknesses exposed during Credit Suisse’s collapse, where the bank’s capital base was found inadequate and regulatory gaps allowed inflated valuations of foreign operations.

These reforms aim to make Switzerland’s banking sector more resilient by reducing the likelihood that the state will have to step in again with emergency support. The proposed measures are part of a broader “too big to fail” reform package that also includes strengthening the quality of banks’ capital and tightening the treatment of hard-to-recover assets like deferred tax assets, which may lose value during a crisis. These changes would take effect as early as 2027 via executive order, while the full capital rule changes would not become law until 2028 at the earliest. UBS would then have at least six to eight years to fully comply.

UBS has publicly opposed the plans, calling them excessive and warning that the additional requirements would impair its ability to compete globally. The bank argues that such a large capital buffer could constrain its foreign growth strategy, since future acquisitions or expansions abroad would need to be fully financed with equity, not cheaper debt raised at the parent level. Despite these concerns, UBS shares rose up to 6% following the announcement, possibly as a relief that the implementation timeline is long and that the proposals remain subject to political negotiation.

US and China reopen trade talks

Presidents Donald Trump and Xi Jinping have agreed to restart bilateral trade negotiations in a bid to cool rising tensions that have been unsettling the global economy. Their phone conversation marks a potential turning point in a deteriorating relationship, though lingering distrust and conflicting narratives suggest the path forward remains uncertain.

At the heart of the current dispute is the Geneva agreement reached last month, a truce that temporarily lowered tit-for-tat tariffs between the US and China, which had climbed as high as 145%. As part of the deal, China committed to resuming exports of rare earth materials and related magnets, critical components in technologies ranging from smartphones to defense systems and electric vehicles. These materials are largely produced in China, giving it significant leverage over global supply chains.

However, tensions flared again when the US accused China of failing to honor its side of the agreement by withholding licenses needed for the export of rare earths. This has led to shortages that threaten to disrupt US manufacturing and has renewed fears of another breakdown in relations. Meanwhile, China has pushed back, blaming the US for escalating the situation by imposing new restrictions, including warnings over the use of Huawei chips, limits on chip-design software exports, and visa cancellations for Chinese students.

In public statements, both leaders struck a more conciliatory tone. Trump called the call “very good” and said he looked forward to visiting China, while Xi reiterated China’s commitment to the Geneva deal and urged the US to retract recent punitive measures. Trump also emphasized the need to resolve “complex” issues, referencing rare earths in particular, and announced that high-level talks would begin soon. These will be led on the US side by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer.

The stakes are high. The US-China trade war has been a major source of volatility in financial markets, prompting sharp sell-offs in global equities at its peak. Although markets have since recovered with the temporary easing of tariffs, investors remain wary. If the diplomatic thaw proves temporary and the two sides revert to protectionist escalation, the global economy could once again face disrupted supply chains, rising input costs, and slower growth.

The geopolitical and economic backdrop in China adds urgency to the negotiations. The country is grappling with sluggish consumer demand, persistent deflation, and high youth unemployment, and these challenges leave Beijing with limited room to absorb further trade shocks.

US Tariffs trigger steel flood into EU

New data from the European Commission’s import surveillance tool reveals a dramatic surge in EU steel imports, whose volumes have risen more than 1,000% year-on-year, while prices have collapsed by 88%.

These figures underscore a core concern: Washington’s protectionist stance is not just reshaping global trade flows but also exporting its economic distortions to allies. In this case, Trump’s reinstatement and subsequent doubling of tariffs on steel and aluminium (from 25% to 50%) have made the US an unattractive destination for exporters, who are now rerouting shipments to Europe, where safeguard measures are weakening ahead of their scheduled expiry in 2026.

The consequences are immediate and stark. European steel producers, such as Germany’s Thyssenkrupp, are warning of suppressed prices, mounting losses, and plant closures.

While the EU has a quota-based safeguard system (25% tariffs above volume thresholds), the mechanism is being eased, fueling concerns that Europe is asleep at the wheel. The European Commission has pledged to propose a new system by this summer, but industry leaders argue that reactive policy timelines won’t suffice.

All this comes against a backdrop of falling EU steel demand. According to Eurofer, the industry body, consumption is expected to decline 0.9% this year, while imports continue to grow. It is an unsustainable dynamic, say producers, and one that Brussels must address with urgency. If the Commission fails to act decisively, Europe could soon face an even deeper deindustrialisation of its steel sector.

OECD warns of slowest economic growth since COVID crisis

The world economy is losing steam, with growth prospects dimming to levels not seen since the peak of the Covid crisis, according to a new forecast from the OECD. The organization cut growth projections for 2025 and 2026 to 2.9%, down from previous expectations and well below the post-pandemic trend. The slowdown, the OECD notes, is widespread, affecting nearly all major economies.

The United States is expected to see a marked deceleration. After expanding by 2.8% last year, the US economy is now forecast to grow just 1.6% in 2025 and 1.5% in 2026. Adding to the pressure is a resurgence of inflation, which the OECD believes will keep the Federal Reserve from cutting rates until sometime next year.

Chief economist Álvaro Pereira urged countries to remove trade barriers and engage in meaningful economic cooperation, warning that prolonged fragmentation would depress investment and push prices higher. 

The downturn in expectations follows a string of tariff hikes announced by President Trump in April, many of which remain in place. Despite recent adjustments, the average US tariff rate has soared from 2.5% to more than 15%.

The OECD based its latest projections on the assumption that the mid-May tariff structure would hold. Under those conditions, it sees inflation in the US climbing to nearly 4% by year-end and staying above the Fed’s 2% target well into 2026.

Other leading economies are also feeling the strain. China is on track to slow from 5% growth last year to 4.7% in 2025 and 4.3% in 2026. The euro area, meanwhile, is forecast to inch forward at just 1% this year and 1.2% the following year. Trade volumes globally are also softening, with international commerce expected to expand by only 2.8% in 2025 and even less the year after.

Beyond trade, the OECD highlighted growing fiscal pressures, pointing to rising defense spending and sluggish tax revenues. Three-quarters of G20 countries saw their growth outlook cut compared to March, and nearly all saw a downgrade from the group’s previous comprehensive report in December.