The completed trading week left investors in a state of euphoria. US stock indices showed confident growth: the S&P 500 stormed towards the historical mark of 6000 points, while the Dow Jones gained over 440 points. The catalysts were, at first glance, a positive labor market report and a temporary lull on two key fronts of political instability: trade negotiations with China and the public conflict between President Trump and Elon Musk.
However, Friday's optimism may turn out to be just a short respite. The upcoming week will be a true test that will examine the foundations of this rally, presenting a global snapshot of data that could dramatically change market sentiments.
Part I. The Anatomy of the Friday Rally: A Look Under the Hood.
To understand the future, we must first dissect the present. On Friday, the markets applauded the US labor market data, which turned out to be better than forecasts — 139 thousand new jobs against an expected 130 thousand. This calmed fears of an imminent recession and triggered growth.
But what do we see if we dig deeper?
Massive revisions: Data for March and April were revised sharply downward — by a total of 95 thousand jobs. This means the economy was significantly weaker in previous months than previously thought.
Alarm signals: The labor force participation rate has dropped to a two-year low of 62.4%. This is a wake-up call indicating that people are leaving the workforce.
Reaction from the bond market: The yield on 10-year Treasury bonds surged as wage growth of 0.4% (above the forecast of 0.3%) reduced the likelihood of an imminent rate cut by the Fed.
Analysis: Friday's employment report is a classic example of 'not as bad as we feared.' It alleviated concerns but did not cancel the overall trend of cooling the economy. Add to this the 'warming' in relations between Trump and Musk, which gave Tesla shares a 3.7% bounce, and the announcement of renewed trade negotiations with China — and you have the perfect cocktail for a short-term rally based on relief, not strength.
Part II. Week of Trials: Global Economic Verdict.
And here is where Friday's euphoria collides with Monday's reality. The upcoming week is not just a set of statistics. It is a global test of economic resilience.
Main stage: America and the inflation exam.
All attention will be focused on the consumer price index (CPI) and producer price index (PPI) reports in the US. Forecasts suggest that annual inflation will hold at 2.3%, but any exceedance of modest monthly forecasts (+0.2%/+0.3%) could bury hopes for easing Fed policy. It is these data, not employment figures, that will be the decisive factor for the regulator's actions.
The specter of stagflation looms over Europe.
Data from the UK could be a cold shower. A contraction in GDP is expected, with unemployment rising to 4.6% (the highest since 2021), all while maintaining a persistently high wage growth of 5.5%. These are classic signs of stagflation — the worst scenario for the economy, where growth falls and prices continue to press. Forecasts of a decline in industrial production in Italy and data on wholesale prices in Germany will only add to this grim picture.
The Asian engine is losing momentum.
Data from Asia is unlikely to add optimism. Focus is on China, where a slowdown in export growth (+5%) is expected and, more importantly, a deepening decline in imports (-0.9%), which is a direct signal of weak domestic demand. The expected decline in consumer (CPI) and producer (PPI) inflation points to the threat of deflation. The picture is completed by Japan, where final data is expected to confirm a contraction of the economy in the first quarter.
The end of the beginning or the beginning of the end?
We stand at a unique point. Friday's rally was based on a look in the rearview mirror — on data that turned out to be slightly better than catastrophic expectations. However, the windshield shows a completely different picture: an impending week filled with data that could confirm the gravest concerns.
The US is undergoing an inflation test that will determine the Fed's policy.
Europe is sinking deeper into stagflation risks.
Asia fights against slowing and the threat of deflation.
All this is happening against a backdrop of persistent uncertainty in trade wars and unpredictable political conflicts. Friday's optimism was emotional. Decisions in the upcoming week will have to be made by investors based on cold and likely unflattering facts. Prepare for volatility. The real test for the markets is just beginning.