by Kim | May 26, 2025
Key events this week; US PCE inflation & prelim goods trade balance, FOMC minutes, & RBNZ meeting
Recap from last week: Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We pick up on a similar theme to last week as we continue to navigate the economic landscape amid the crosscurrents of evolving trade policy. The economic landscape remains subject to the immediate and unpredictable element of trade policy, a reality sharply underscored by renewed tariff threats late last week – which have, for now, been postponed. This week, we examine how preliminary PMI data for May reflects business responses to this highly uncertain environment, analyze the mixed inflation picture, and assess how global central banks are attempting to balance their mandates against the unpredictable tariff wildcard.
We again lean heavily on the leading S&P prelim PMIs for May to provide an up-to-date picture of how businesses and countries are responding to this uncertain backdrop. Broadly, the prelim PMIs for May did show that the tariff reprieves have indeed provided a boost to business confidence and sentiment in future output growth. However, in the US especially, underlying concern about future tariff issues, supply chain disruptions, and rising prices persisted.
The improvement in US manufacturing activity hints at some contribution from tariff front-running – with the headline PMI higher due to increasing lead times and a notable increase in inventories. Output growth increased from a stalled pace driven by domestic demand while new export orders contracted. The increase in new orders was driven by a combination of tariff front-running and reports of switching from new domestic customers. This helped to offset the drag from another fall in employment. In the US services PMI, output activity rebounded from the fall in Apr, but there was an especially sharp fall in services new export orders. Across both sectors, the PMIs indicate that pricing pressure continued to intensify in May – and extended to manufacturing selling prices this month. The fall in both US services and manufacturing payrolls, plus inventory stocking among manufacturers, reflects the still subdued optimism and caution in the outlook.
Weaker activity and sentiment due to trade uncertainty are still evident in Japan and to a lesser extent in Australia. The Eurozone’s weakness was driven more by weaker services, but the data acknowledges the potential for tariff-related “front-running” to have helped stabilize manufacturing output.
Global CPI reports provided a mixed view of the inflation picture – but had a similar theme; stickier underlying inflation.
The Euro Area headline inflation was stable at +2.2% in Apr with falling energy prices offsetting higher food price inflation. Core inflation jumped to +2.7% (from +2.4% in Mar), as services inflation accelerated back up to +4% in Apr.
The UK CPI report for Apr came in higher than expected – with expectations already higher due to annual increases in the energy/utilities price cap, a rise in the vehicle excise duty, Easter calendar effects, and the introduction of the new payroll tax. While some contributions are considered “one-off,” the immediate impact is higher inflation. Headline UK CPI increased by +3.5% over the year in Apr, up from +2.6% in Mar. Core CPI jumped to +3.8% in Apr from +3.4% in Mar.
Japan’s measures of inflation accelerated in Apr – across both annual and monthly measures. The BoJ preferred core CPI ex fresh food accelerated further in Apr to +3.5% from +3.2% in Mar – led by food excluding fresh food, housing, fuel/light/water, and culture & recreation, including a +3.1% increase in energy prices over the month. The fall in Education prices (reduction in public high school fees) offset some of these increases. While core inflation measures are still above the recently revised BoJ forecasts, the BoJ expects underlying inflation readings to moderate in the second half – in line with notably reduced growth forecasts. At the last meeting, the BoJ stayed on hold until the effect of tariffs and trade negotiations on prices and activity became clearer.
Canada’s headline CPI slowed to +1.7% in Apr due to falling energy prices (including the removal of the consumer carbon price). However, underlying inflation accelerated; both the trimmed mean and median measures increased to their highest levels in over six months, with the two measures averaging +3.1% in Apr, up from +2.8% in Mar.
After seeing disinflationary progress from higher rates, underlying inflation pressures have remained sticky in April – and it’s unclear how persistent this will be. Confronted with a highly uncertain shock from tariffs, central banks are striving to balance their mandates of price stability and full employment. Last week’s decisions (RBA, ECB minutes) reflected a consistent approach to that challenge: either cutting rates as insurance against downside growth risks, or waiting (as with the Fed) to observe tariff (and broader policy) developments, yet still favoring cuts.
The RBA cut the cash rate by 25bps as expected last week, citing easing inflation supported by low unemployment, and a pre-emptive element against a highly “unpredictable” tariff and trade backdrop. Growth and inflation forecasts were revised lower, while the unemployment rate was forecast to edge higher in the medium term. Governor Bullock noted that the Board had determined that “global trade developments will overall be disinflationary for Australia”, an important context for the RBA view on the impact of tariffs. The current monetary policy stance was deemed as “somewhat less restrictive,” which suggests that there is scope for further cuts, amid the highly uncertain environment.
The ECB minutes confirmed the details of the recent decision to cut rates, citing confidence in the disinflationary process, effective transmission of policy, and “insurance against negative economic outcomes stemming from escalating US tariff proposals.” The outlook remained cautious given that retaliatory tariffs and fiscal spending could push prices higher, and the overall unpredictability of global trade policy is also weighing on growth. The ECB reiterated its data-dependent approach, maintaining full optionality, and stressing the need for agility to react quickly if necessary.
In an interview last week, Fed Governor Waller noted that rate cuts were still possible if tariff rates settled at the lower end of the range.
Outlook for the week ahead; US PCE inflation & prelim goods trade balance, FOMC minutes, & the RBNZ meeting
As the new trade and tariff regime continues to take hold, data releases this week will offer insights into shifts in US sentiment, economic performance, and inflation dynamics.
Key factors & events to watch this week;
The Fed-preferred PCE inflation for Apr is expected to be little changed – based on the latest Cleveland Fed PCE inflation nowcast for Apr, though there is a range of forecasts;
- Headline PCE inflation is expected to increase by +0.19% over the month in Apr, up from 0% in Mar. Assuming no revisions in the prior month, the annual rate would increase by +2.2%, down from +2.3% in Mar.
- According to the Cleveland Fed nowcast, core PCE inflation is expected to increase by +0.21% over the month in Apr, up from 0% in Mar. Assuming no revisions to Mar, the annual rate would remain at +2.6% over the year in Apr. Other estimates suggest that the increase in core PCE inflation over the month will be lower at +0.1% – and in this case, the annual rate would slow to +2.5% in Apr, from +2.65% in Mar.
US Growth Inputs – there will be various data releases that will feed into a more robust update of the Atlanta Fed US Q2 GDP growth nowcast – currently sitting at +2.4% for Q2
- One of the most awaited data releases will be the prelim goods trade balance for Apr. This has widened notably in Q1, and especially in Feb and Mar, as firms have front-run expected tariff increases. The goods trade balance is expected to narrow to -$141bn from -$163 in Mar.
- Personal spending for Apr is expected to slow to +0.2% over the month from +0.7% in Mar.
- Personal income growth is expected to slow to +0.3% in Apr from +0.5% in Mar.
- Durable goods orders for Apr are expected to fall by -7.9%, reversing the stronger increase in Mar of +7.5%.
- The second prelim estimate of US Q1 GDP is expected to confirm the -0.3% decline in GDP over the quarter.
- The Conference Board and Michigan (final) consumer sentiment surveys for May are expected to show a slight improvement in sentiment though remaining subdued.
Central Banks
- The FOMC minutes of the latest meeting on 7 May will be released. The FOMC kept policy settings unchanged at this meeting and reiterated its wait-and-see mode due to the high degree of uncertainty over the “final” version of tariffs, and how that will play out in terms of inflation, the labor market, and growth.
- There will be numerous speeches this week – see the Fed calendar for details – HERE.
- The RBNZ is expected to cut rates by 25bps at its meeting this week.
This week, the US Treasury will auction and/or settle approx. $679bn in ST Bills, Notes, Bonds, TIPS, and FRNs, raising approx. $134bn in new money.
QT this week: Approx $40bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $1.9bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed and roll-off the balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mofar2016 | May 26, 2025
Last week, global equities declined following yet another Trump Tariff barb (noise) but the big picture bullish outlook remains intact (signal). The question is whether the corrective decline for wave (4) is complete and the impulsive rally extends immediately higher for (5) up, or wave (4) develops into a more complex correction or triangle. Bulls […]
by Mofar2016 | May 19, 2025
Last week, equities rallied strongly through layered resistance in a gap and go following Trump's Tariff capitulation with China. Risk markets celebrated Trump walking back the trade war narrative and kicking the can down the road. The latest rally opens the door to a hard test of ATH's and potential for an immediate wave (5) […]
by Kim | May 19, 2025
Key events this week – S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
Recap from last week – Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We continue to navigate shifts in the economic landscape amid the crosscurrents of evolving trade policy. This past week offered a crucial snapshot of the US economy’s early Q2 growth and inflation performance under the nascent trade and tariff regime. The shifting tariff goalposts have created uncertainty for businesses, consumers, and policymakers. Meanwhile, the impact on and outlook for inflation remain uncertain, but initial hard data for US Q2 growth has largely shown resilience, yet is still challenged by pockets of weakness and downbeat sentiment.
The inflation picture at the start of Q2 continues to be shaped by concerns over above-target inflation, coupled with uncertainty about the impact of tariffs on inflation. Both Fed Vice Chair Jefferson and Governor Kugler’s speeches built on the FOMC’s acknowledgment that risks to both sides of the dual mandate have increased. Both speeches underscored the concern that, given inflation remains above target, tariffs pose an upside risk to inflation. There is still uncertainty over the scope and level of tariffs, the degree to which they will be passed through, and importantly how persistent inflation from tariffs may be. Governor Kugler quoted a Dallas Fed survey that found that 55% of Texas business executives expect to pass through most or all of the costs from higher tariffs to customers. Of those, 64% expect this pass-through to occur within the first three months after the tariffs take effect. That would suggest that tariff-related price increases may be observed soon (Source: Gov Kugler speech).
The impact on prices will hinge on the path and settlement of tariff rates. In the interim, the announcement of a 90-day reprieve from the significantly higher US-China tariffs generated optimism this past week. Tariffs between the US and China will remain at a reduced level during this truce. With the 90-day pause on reciprocal tariffs nearing its midpoint, trade talks have been prioritized among some countries. However, adding to the evolving landscape, US President Trump announced that his administration would begin to set the reciprocal tariff rates for other countries “over the next two to three weeks” (source: Bloomberg).
With the more tangible impact of tariffs on inflation likely still on the horizon, the Apr US CPI offered a slightly cooler reading than expected over the month. The annual headline rate also eased by slightly more than anticipated. Core goods prices continued to make a positive contribution to the change in headline inflation between Apr and Mar, while core services made the largest contribution to the deceleration in annual inflation, along with food and energy categories. Measures of underlying inflation – indicating where inflation might be headed – show a mixed picture. The trimmed mean continues to show progress on disinflation; however, the trend indicates that the underlying pace of disinflation has been slowing. PPI inflation over the month surprised notably to the downside to -0.5% over the month and there was a larger upside revision to the monthly rate in Mar (revised up from -0.4% to 0% in Mar). PPI services were the main contributor to the downside surprise in Apr (portfolio mgt fees & airline fares fell). Together, the CPI and PPI provide a guide for the important PCE inflation result. The Cleveland Fed Inflation Nowcast of PCE inflation over the month in Apr (as of 16 May) shows headline PCE inflation growth of +0.19% and core +0.21% over the month. Core PCE would stay at +2.6% over the year.
The first view of important Q2 growth data showed signs of resilience. The Atlanta Fed GDP Nowcast for US Q2 growth edged higher to +2.4% after data releases. This is still an early reading on growth for Q2 and will continue to evolve over the coming weeks. There was a positive contribution from retail sales and industrial production. US nominal retail sales growth slowed to +0.1% in Apr after a strong, upwardly revised +1.7% in Mar. While this reflects at least sustained spending after the strong Mar result, there is a risk that the pull-forward of demand (notably in autos) may reverse as demand normalizes in the near term, with tariff impacts as a key variable. Industrial production was flat in Apr after falling Mar – as declines in manufacturing and mining output were offset by growth in utilities output. The first US regional manufacturing surveys for May generally showed demand conditions had stabilized, with improvements in future output expectations (not including the response to the US-China tariff reduction reprieve), though input price pressures persisted. There was a small negative contribution to Q2 growth from housing starts, which came in a little lower than expected but increased slightly from the weaker result in Mar. New home builder sentiment fell notably in May.
US consumer sentiment indicators edged lower across most measures in the prelim report for May. However, the survey did capture some early reactions to the news of the 90-day reprieve/reduction on tariffs between the US and China – which seemed to be positive for sentiment. The final reading for May should reflect a broader reaction to the news.
Outlook for the week ahead; S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
As the new trade and tariff regime continues to take hold, data releases will continue to offer an early glimpse into shifts in sentiment, economic performance, and inflation dynamics. While it will generally be a lighter data week, there will be several releases of interest, including the S&P prelim PMIs for May. Other highlights include US existing and new home sales and important inflation data for Japan, the UK, Canada, and the Euro area. The RBA meets and the ECB minutes will be released this week. The tariff backdrop should remain positive with hints of further trade agreement frameworks to be announced in the coming weeks.
Key factors & events to watch this week;
S&P Prelim PMI’s May
The S&P Prelim PMIs for May should provide one of the first reactions to last week’s announcement of the US-China reduced tariff reprieve. This reaction is likely to show up in the future output expectations and sentiment components. The May prelim report should also have a more robust business reaction to the reciprocal tariff pause (back on the 9 Apr). The Apr PMIs reflected a slowdown in growth momentum against a backdrop of the initial tariff and reciprocal tariff announcements, rising prices, and weakening sentiment. Therefore, this week’s PMI data will be crucial in determining if these trends persisted into May and if the various tariff reprieves resulted in a boost to activity and business outlook.
Central Banks
- The RBA meets this week and is expected to cut rates by 25bps for only the second time in this cycle. The last meeting was on 1 Apr, just before the ‘Liberation Day’ tariff announcement amid a heightened sense of uncertainty in the outlook. In considering the path of rates, the Board needed confidence that inflation would continue to move in the right direction. The Q1 CPI helped to confirm the continued progress on disinflation with core CPI easing back to the upper target band, while last week’s labour market survey for Apr recorded strong employment growth and a continuing trend of low unemployment.
- The ECB Minutes of the last meeting will be released this week.
- US Fed speeches; there will be numerous speeches this week, several of which are scheduled Commencement or Baccalaureate speeches (Fed Chair Powell). See the Fed calendar for details – HERE.
Global inflation data – CPI for Apr
- Euro area CPI for Apr (final) is expected to confirm headline inflation at +2.2% over the year and core inflation at +2.7% over the year.
- Canada’s CPI for Apr is expected to slow to +1.6% over the year from +2.3% in Mar. Monthly inflation is expected to increase by +0.5% in Apr, up from +0.3% in Mar.
- UK headline CPI is expected to increase by +3.3% over the year in Apr, up from +2.6% in Mar. Core CPI is also expected to increase by +3.6% in Apr, up from +3.4% in Mar.
- Japan’s National CPI is also expected to increase. The BoJ-preferred core CPI – ex fresh food, is expected to increase by +3.5% in Apr, up from +3.2% in Mar.
US data – housing & regional manufacturing surveys
- US existing home sales are expected to increase to 4.15m (annualized) in Apr, up from 4.02m in Mar.
- New home sales are expected to remain lackluster, slowing to 0.696m (annualized) in Apr, from 0.724m in Mar.
- The Kansas City Fed Manufacturing Index for May will be released this week.
This week, the US Treasury will auction and/or settle approx. $434bn in ST Bills, with a paydown of approx. $12bn. The US Treasury will also auction the 20-year Bond and 10-year TIPS this week – both will settle at the end of the month.
QT this week: Approx $14.1bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
Next Monday is the US Memorial Day Holiday.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 12, 2025
Key events this week – US CPI, PPI, retail sales, output, housing, and US Fed speeches
Recap from last week: Central Bank Decisions Diverge on Tariff Uncertainty
Elevated tariff uncertainty and trade tensions remained a key theme among central bank decisions last week; however, their decisions diverged as each central bank navigated its specific exposure to global trade headwinds and domestic issues.
The FOMC kept rates unchanged as expected, and remained firmly in ‘wait and see’ mode. US Fed Chair Powell cited elevated uncertainty over tariffs, their effects, the broader policy landscape, and therefore the right policy response at this stage of the process.
There’s so much uncertainty about the scale, scope, timing, and persistence of the tariffs. Source: FOMC Press Conference 7 May 2025
The Fed Chair acknowledged the weakening domestic sentiment but emphasized the “still solid” hard data. But with inflation still above the 2% target, the Fed Chair ruled out the opportunity for pre-emptive rate cuts. The still-solid data continues to support the Fed staying on hold as it waits for “economic conditions to evolve”. There was a new statement in the decision though – an important acknowledgment that the Fed sees rising risks to both sides of its dual mandate;
The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen. Source: FOMC Statement 7 May 2025
The BoE cut rates by 25bps – a decision split 5-4, with two members preferring a 50bps cut and two members preferring to keep rates unchanged. The decision to cut reflected ongoing progress on disinflation, enabling the MPC to withdraw, gradually, its policy restraint. The minutes of the decision suggested that there was a pre-emptive element to this rate cut;
Although the current impact of the global trade news should not be overstated, the news was sufficient for those members to judge that a reduction in Bank Rate was warranted. Source: BoE Statement 8 May 2025
The PBoC announced a series of rate cuts and monetary easing measures to support domestic activity, as the Chinese economy bears the brunt of the trade war.
“This isn’t just a boost for liquidity and credit — the focus on tech, consumption, and elderly care signals a broader push to support structural drivers of the economy.” Source: Bloomberg
China’s overall trade data for Apr was surprisingly solid, with export growth remaining firm at +8.1% over the year. While exports from China to the US fell by -21% from a year ago due to higher tariffs (Source: Bloomberg), the report suggested that exports from China to other countries increased to offset that fall. Imports from the US also fell by -14%, while the broader decline in China’s import demand eased to -0.2% over the year. This is the first “hard data” confirming slowing trade between the US and China. The opening of negotiations between the US and China offers a glimmer of hope for a path to a reduction in the currently “unsustainable” level of tariffs on US-China trade. At the time of writing, the US and China agreed to a short reprieve with tariffs lowered for the next ninety days as talks continue. The US is to lower tariffs on China to 30% (from 145%) for 90 days and China is to lower tariffs on the US to 10% (from 125%) for 90 days (source: Bloomberg).
While central bank decisions showed diverging responses to the trade uncertainty, the ‘soft’ indicators continued to paint a picture of an emerging tariff drag. Last week, the global S&P PMIs for April reflected some weakening in global economic momentum. The latest Global S&P PMIs revealed a notable deceleration in global economic momentum in Apr, reaching a 17-month low but remaining in positive territory. Service sector growth eased sharply while manufacturing output growth remained sluggish. This more widespread slowdown in growth was evident in major economies like China, the euro area, and the UK. The deceleration was also pronounced in the US – led by a notable slowdown in the larger services sector. Growth in US services activity slowed to a more modest pace as firms noted that rising trade uncertainty impacted demand in both domestic and export markets. Future output sentiment continued to wane. Rising input prices due to tariffs were noted as the key reason for the increase in output/selling prices in Apr.
One other piece of hard data that continued to soften last week was Canada’s labour market in Apr. Employment growth remained subdued at +7.4k as labour force participation increased – this resulted in the unemployment rate moving back up 6.9% in Apr, from 6.7% in Mar. Employment declined across some of the more tariff-exposed industries; manufacturing -33k and wholesale/retail -27k. Statistics Canada notes though that the proportion of unemployed due to layoffs in Apr (0.7%), was little changed from a year ago (0.6%). Falls in employment were partly offset by an increase in temporary employment due to the federal election.
Outlook for the week ahead; US CPI, PPI, retail sales, production, housing, and US Fed speeches
This week, the focus shifts to important US hard data – retail sales, CPI & PPI, industrial production, and residential construction. These datapoints will provide a critical early read on Q2 growth momentum and potentially signal whether it’s beginning to align with recent softer survey trends. All of this unfolds against the backdrop of trade talk optimism and Fed commentary.
Key factors & events to watch this week;
US CPI and PPI inflation for April is expected to show monthly inflation firming. The detail will be important as to whether this begins to reflect any potential tariff impacts. The CPI & PPI will provide a leading guide for the Fed-preferred PCE inflation measure.
- Headline CPI is expected to be unchanged at +2.4% over the year in Apr, versus +2.4% in Mar. CPI is expected to increase by +0.3% over the month, up from -0.1% in Mar.
- Core CPI is expected to increase by +2.85% in Apr, up from +2.8% in Mar. Core CPI is expected to increase by +0.3% in Apr, also up from +0.1% in Mar.
- Headline PPI is expected to slow to +2.5% in Apr from +2.75% in Mar. Over the month, PPI is expected to increase by +0.2%, up from -0.4% in Mar.
- Core PPI is expected to slow to +3.1% in Apr, from +3.3% in Mar. Monthly core PPI is expected to increase by +0.3% in Apr, up from -0.1% in Mar.
US retail sales for Apr are expected to slow after the much stronger result in Mar.
- US retail sales are expected to increase by +0.1% in Apr, down from +1.5% in Mar.
- Last month, the retail control group increased by +0.4% – this is the measures that will feed into the GDP result.
US manufacturing and output
- US industrial production for Apr is expected to stabilize at +0.1% after falling by -0.3% in Mar. The manufacturing output figure will be important – in Mar, manufacturing output increased by +0.3%, down from +1% in Feb. The PMI indicators of manufacturing output in Apr suggest a more stalled pace of expansion.
- The first US regional manufacturing surveys for May will be released this week – the NY Empire State and Philadelphia Fed surveys. The May survey data will be interesting to gauge any leading shift in sentiment since the pause on reciprocal tariffs in early Apr.
US residential construction
- Building permits are expected to be little changed at around 1.45m (annualized) in Apr, from 1.467m in Mar.
- Housing starts are expected to increase slightly to 1.36m in Apr, from 1.32m in Mar.
Important US Fed speeches this week;
- US Fed Chair Powell will give a speech later in the week on the Framework Review – it’s not clear whether this will include specific commentary on the current outlook.
- US Fed Vice Chair Jefferson and Fed Governor Kugler will both give speeches on the economic outlook. Speeches on the ‘economic outlook’ are usually more instructive for the specific views of FOMC members.
- Fed Governor Waller will also give a speech this week on Central Bank Research – again it’s not clear whether this will include specific commentary on the economic outlook.
Outside of the US, data will focus broadly on GDP growth results for Q1 (QoQ); Euro area (second prelim) +0.4%, the UK +0.6%, and Japan -0.1%.
There will be a range of important Aus data in the lead-up to the RBA meeting next week (20 May).
- The Wage Price Index for Q1 is expected to remain little changed at +0.8% in Q1, after a +0.7% increase in Q4 2024. The annual rate is expected to remain around +3.2%.
- The Aus labour market survey is expected to show continued modest employment growth of +21k in Apr and the unemployment rate to remain unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $632bn in ST Bills, Notes, and Bonds, raising approx. $42bn in new money.
QT this week: Approx $67.8bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $3.1bn of Notes & Bonds will mature on the Fed balance sheet and will be redeemed/roll-off the balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
