ECB cuts rates for eighth time

On June 5, the European Central Bank (ECB) reduced its deposit facility rate by 25 basis points to 2.00%, marking its eighth rate cut in a year and the lowest level since early 2023. This move aims to support the eurozone economy amid subdued inflation and escalating trade tensions, particularly with the U.S. The ECB President, Christine Lagarde, indicated that the bank is nearing the end of its easing cycle, stating they are "in a good position" to navigate upcoming uncertainties. The ECB's updated projections indicate that inflation will average 2.0% in 2025 and 1.6% in 2026, with real GDP growth expected to be 0.9% in 2025. The central bank emphasized a data-dependent, meeting-by-meeting approach moving forward.

• The ECB’s continued easing stands in contrast to the Fed’s continued pause
• US overnight interest rates are now over 2% higher than in the EU
• The ECB has the benefit of inflation falling below 2% as well as being more pre-emptive than the Fed in reaction to Trump’s tariffs
• Looking at the yield curve in the US, it does seem the Fed has kept rates a bit high relative to where the market is pricing 10 and 30-year treasuries
• This will almost certainly fuel continued pressure from Trump to lower rates

U.S. labor market continues to defy skeptics

The U.S. economy added 139,000 jobs in May, slightly above expectations but indicating a moderation in job growth. The unemployment rate remained steady at 4.2%, while average hourly earnings increased by 0.4% month-over-month and 3.9% year-over-year. Revisions to March and April figures resulted in a combined downward adjustment of 95,000 jobs. Notably, federal government employment declined by 22,000 in May, aligning with ongoing efforts to reduce the size of the federal workforce. The labor force participation rate decreased to 62.4%, and the employment-population ratio dropped to 59.7%, indicating a slight contraction in labor market engagement.

• Although the job number came in slightly higher than expectations, the negative revisions to the prior few months show that the labor market may not be as strong as it seems
• This is further evidenced by the slight decrease in labor participation rate, a weak ADP report, and slightly higher than expected unemployment claims number earlier in the week
• On the bright side, the JOLTS (job openings) data earlier in the week showed more job openings than expected
• The quits rate remained low, signaling fewer people are willing to switch jobs
• Wage inflation is still running at almost 4% year over year, signaling that employers have to pay higher wages to hire and retain employees
• For now, it seems the labor market remains healthy, although significantly weaker than it was last year

First stablecoin IPO soars in debut

Stablecoin issuer Circle Internet Financial (ticker: CRCL) made a remarkable debut on the New York Stock Exchange, with shares opening at $69 and closing at $83.23, a 168% increase from its IPO price of $31. The company raised approximately $1.1 billion through the sale of 34 million shares, achieving a market capitalization of around $18.4 billion. This IPO, the largest for a crypto firm since Coinbase's 2021 debut, reflects growing investor confidence in the digital asset sector. Circle's strong financial performance, including a net income of $64.79 million on $578.57 million in Q1 revenue, and the increasing adoption of its USDC stablecoin, which facilitated over $25 trillion in transactions since launch, underscore its market significance. The IPO's success is further bolstered by a favorable regulatory outlook, including the proposed GENIUS Act, which aims to provide clarity for stablecoin operations.

• Stablecoins will likely become a part of our daily lives as they facilitate a 24/7 and inexpensive way to transfer value
• Circle launched its stablecoin in 2018 as a way to offer a more compliant way to hold USD on chain than Tether, the first stablecoin platform
• The market response is telling, as investors bid up shares on its first two days of trading
• While naysayers compare stablecoins to money market funds, the distinction is significant
• While stablecoins take US dollar deposits and provide their users yield by investing the US dollars in money market funds, the ability to send USDC onchain 24 hours a day, 7 days a week for a fraction of the cost of existing options makes it a much more compelling product
• If appropriate regulation is passed, stablecoins have the ability to completely disrupt the existing payment infrastructure globally

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