by Kim | Sep 1, 2025
The key events shaping this week: US labor market data for Aug, ISM surveys, Fed Beige Book, Euro Area CPI Aug, Aus GDP Q2, Global S&P PMIs Aug.
Recap from last week: US Inflation & Growth Amid a Shifting Balance of Risks
One of the clearest messages from Fed Chair Powell’s Jackson Hole speech was the shift in his view of the balance of risks. In the near term, he noted that risks to inflation are tilted to the upside, while risks to employment have become tilted to the downside. This led Fed Chair Powell to adopt a “proceeding carefully” approach to adjusting its policy stance and signalled a cut likely at the Sept FOMC meeting.
“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” Fed Chair Powell, Jackson Hole speech 22 Aug 2025
Powell offered two reasons for his shift. Firstly, he noted that the slowing demand and supply of labor suggested that downside risks to employment are rising. Secondly, he acknowledged that while tariff impacts on consumer prices were “clearly visible”, what was more important for monetary policy was whether these increases raised the risks of an ongoing inflation problem. He noted Governors Waller and Bowman view that a “reasonable base case” is that inflation impacts from tariffs will be relatively short-lived.
Governor Waller’s speech last week added to this cautious, but forward-looking tone. Governor Waller continued to push for recommencing rate cuts, advocating for a move towards a more neutral stance. He did, however, temper that by remaining data dependent on how quickly to move the policy rate to a more neutral setting. While he remained data-dependent on the pace of policy adjustments, he did not believe the Fed had fallen “substantially” behind the curve. Waller indicated that he supports a cut at the upcoming Sep meeting and anticipates additional cuts over the next three to six months, also appearing to take a cautious approach.
This shift in the Fed’s perspective means that the evolution of the upcoming data, including last week’s US inflation and growth data and this week’s labor market data, will be important for how the Fed may navigate a more equal weight to the risks on both sides of its mandate.
Last week’s Fed-preferred PCE inflation data showed persistent inflation pressure, but a significant acceleration was not evident. Both headline and core PCE inflation came in as expected, with headline PCE edging slightly higher to +2.6% while core PCE increased to +2.9% over the year. Most of the inflation pressure in the month was centred back on core services, which did accelerate to +0.4% over the month and to +3.5% over the year. Core goods inflation, where we’d expect to see some tariff-led effects, remained flat over the month, but accelerated to +1.1% over the year. Other important measures of underlying inflation indicate some easing in inflation this month, but remained firmer over the year after increasing since May. It’s likely still too early to see the full, broad-based tariff impacts, as they are likely to have a rolling effect. For now, the inflation picture remains one of persistence and likely supports Chair Powell’s view for the need to “proceed cautiously”.
Last week, several indicators suggested some improvement in the growth backdrop, supporting a more positive view for the economy. Firstly, Q2 GDP was revised higher to an annualized pace of +3.3%. This was led by a small upward revision from personal spending, but mostly from fixed investment spending. This was followed by a step higher in the latest Atlanta Fed GDP nowcast for Q3 growth, which increased last week to a +3.5% run rate. The main contributors to the faster Q3 growth so far in the quarter were from net exports and non-residential investment spending. Importantly, personal spending and income growth also firmed in Jul.
With inflation remaining persistent and growth showing signs of resilience, our focus now shifts to the other side of the Fed’s mandate: assessing the overall health of the US labor market in the week ahead. The upcoming labor market data for Aug will be a crucial test of whether the recent signs of a slowdown are temporary or a new, more concerning trend.
Outlook for the week ahead: US labor market for Aug, US ISM PMIs, Fed Beige Book, Euro Area CPI Aug, Aus GDP Q2, Global S&P PMIs Aug
At Jackson Hole, Fed Chair Powell signalled a shift in which both upside inflation risks and downside employment risks have become equally prominent. The evolution of incoming data will be important for how the Fed may navigate this challenge to balance both sides of its mandate. With inflation remaining persistent, but not worsening, the US labor market update for Aug will be important, especially given the slowdown and revisions in Jul. The key question this week is whether the US labor market continues to weaken after the slowdown in job growth in Jul and the concerning downward revisions to payroll growth in May and Jun. Other US data will provide further input into the growth momentum of the economy in Aug, ahead of the next FOMC meeting on 16-17 Sep.
Outside of the US, data will continue to provide a comparative view of growth, inflation, and employment impacts with upcoming central bank meetings this month.
Key factors & events to watch this week
A broad view of the health of the US labor market.
Broadly, we’ll be looking for any changes to that “slow hiring, slow firing” dynamic that currently characterizes the labor market. While non-farm payroll growth and revisions will be important, there will also be some focus on data indicating changes in labor supply.
- US non-farm payroll growth is expected to stabilize around +74k in Aug versus +73k in Jul. Revisions to Jul and Jun will be important to understanding shifts in the overall trend of payroll growth.
- The unemployment rate is expected to edge higher to 4.3% in Aug from 4.2% in Jul. Last month, the participation rate continued to edge lower to 62.2%, which helped to offset some of the weakness in employment growth, keeping the unemployment rate low.
- Avg weekly hours are expected to remain unchanged at 34.3 in Aug.
- Avg hourly earnings are expected to increase by +0.3% over the month and remain around +3.9% over the year.
- Job Openings via the JOLTS report for Jul is expected to slow to 7.24m in Jul from 7.43m in Jun (data lag by a month).
- The Challenger job cut announcements are expected to continue to ease.
- Initial claims are expected to remain unchanged at +229k over the week ending 30 Aug. So far, continuing claims have remained elevated – reflecting an ongoing cautious hiring environment.
US manufacturing and services momentum.
Key data releases this week will feed into another update on US growth momentum so far in Q3.
- Both the S&P and ISM PMI surveys across manufacturing and services will provide a view of growth momentum midway through Q3.
- US factory orders for Jul are expected to fall by -1.3% in Jul after a -4.8% fall in Jun.
- The full international trade report for Jul will be released; the advance report showed a widening in the goods trade deficit as import growth rebounded while export growth remained subdued.
US Fed Speeches & Data
- There will be limited Fed speeches this week. It will be the last week of speeches ahead of the blackout period next week, before the FOMC meeting on 16-17 Sep.
- The latest Fed Beige Book for the six weeks since mid-Jul, will be released this week. This will provide a range of business anecdotes regarding sales growth, pricing, sentiment, and labor market views.
- Hearings for Stephen Miran, the nominee to replace FOMC member Governor Kugler, are expected this week. The confirmation is expected to be expedited to fill the position before the Sep FOMC meeting.
Global growth, inflation, and employment.
Outside of the US, labour market, growth, and inflation data will be important ahead of several central bank meetings this month.
- The prelim Euro area CPI for Aug is expected to remain unchanged at 2%, versus 2% in Jul. Core CPI is expected to edge lower to +2.2% in Aug from +2.3% in Jul. The Euro area Q2 GDP is expected to be confirmed at +0.1%. ECB President Lagarde will give a speech early in the week at the ECB’s Legal Conference. The ECB meets on 10 – 11 Sep.
- Canadian labour market data for Aug is expected to show employment growth stabilized at +9k in Aug after falling -40k in Jul. The unemployment rate is expected to increase to 7% in Aug from 6.9% in Jul. The BoC meets in two weeks, just before the FOMC.
- Aus GDP for Q2 is expected to accelerate to +0.5% over the quarter. RBA Governor Bullock will give a speech after the GDP release (Technology & the Future of Central banking at the RBA). The RBA meets at the end of the month.
The broader suite of global S&P PMIs for August will be released this week, providing further insight into tariffs’ effects on global output, trade, prices, and business sentiment.
This week, the US Treasury will auction and settle approx. $739bn in ST Bills, Notes, and Bonds, raising approx. $160bn in new money.
QT this week: Approx $6.5bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
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 | Aug 18, 2025
The key events shaping the week commencing 18 August 2025 are: the annual Jackson Hole Symposium on Central Banking, Prelim S&P PMIs August, Global Inflation: UK, Canada, Euro area, and Japan.
Recap from last week: Paving the Way to Jackson Hole
Last week, US economic data provided another important update on tariff impacts feeding into domestic inflation. The latest inflation reports intensified the debate over the trajectory of US inflation and the Fed’s response. The US CPI report was mixed, but initially offered some comfort on tariffs, despite rising core inflation. This, however, was followed by a much hotter-than-expected PPI report, which served as a reality check on the potential impact of tariffs. This highlights the Fed’s primary challenge: distinguishing between persistent, underlying inflation and the potentially temporary but still-concerning effects of tariffs. While the overall growth picture remained mixed, the full impact of tariffs on the broader economy remains a key unknown. All eyes will now be on the US Fed Chair this week at the Jackson Hole symposium for signals on how the Fed will navigate these unknowns.
To better understand these dynamics, the week’s US data provided three key perspectives on domestic inflation, starting with the consumer perspective. Headline CPI came in as expected – with food inflation easing slightly over the year, and energy prices falling – while underlying core inflation accelerated. Core inflation has two factors to disentangle: the impact of tariffs on core goods inflation and a further acceleration in core services inflation. On the core goods front, the tariff effect did not appear to worsen, with core goods prices rising again by +0.2% over the month and increasing to +1.1% over the year. While this seems low, context is important: core goods are no longer providing a deflationary offset like they did before the pandemic. This may complicate the Fed’s task of getting inflation back to the 2% target. Core services inflation remained firm at +3.65% and has stalled at this pace for the last five months, despite continued moderation in shelter prices.
Last month, we were concerned that consumer inflation pressure had broadened out among categories. From a shorter-term perspective, the monthly trimmed mean and median inflation rates eased in Jul, despite the firmer core CPI, suggesting somewhat less broad-based inflation pressure compared to Jun. However, the trend in the annual rates of trimmed mean and median inflation accelerated to new YTD highs this month. This could be an important indicator that inflationary pressures have become broader and remained more persistent than at the start of the year. This was also potentially reflected in some of the firming of consumer inflation expectations data from the prelim Michigan survey for Aug. In other words, consumer-facing inflation pressures are likely still persistent.
The second perspective was the PPI. This measures the average change in the selling prices received by domestic producers for their output. This month, the PPI came in much higher than expected, with both headline and core PPI increasing by +0.9% over the month and accelerating to +3.3% and +3.7% respectively. The release of the report provided a reality check on the potential for tariff impacts. All key areas of PPI final demand prices accelerated this month: goods, food, energy, and services prices. This has been the first month since the introduction of tariffs where the increase in the PPI has accelerated in a meaningful way, and potentially marks a shift where tariff and inflation impacts may be feeding into the system.
The final view is the import price index, which we are using as a proxy to understand whether importers, exporters, or both are bearing the cost of tariffs. The import price index measures the price of imported goods before any duties are applied. The index is used to deflate international trade statistics in the National Accounts data. If import prices are falling, then it’s likely that exporters are lowering prices to help offset the effect of tariffs on their products. If import prices are rising or little changed, then it’s likely that domestic importers are bearing the tariff duty. On aggregate, exporters to the US did not lower prices in Jul. The important index to focus on is the import prices excluding fuels. In Jul, import prices excluding fuels increased by +0.3%, after falling by -0.3% in Jun (revised lower). Over the year, import prices ex fuels were +0.9% in Jul, up slightly from +0.8% in Jun. The 3-month annualized pace is 0%. This suggests, on aggregate, that the burden of tariffs is falling on domestic importers.
Beyond the inflation data, this week’s releases provided a crucial read on the state of domestic demand and the labor market, the other side of the Fed’s balancing act. For the Fed, spending data last week showed a resilient consumer holding things together. Retail sales growth in Jul was relatively good, coming in at +0.5% as expected, with a positive upside revision for Jun to 0.9%. The Atlanta Fed GDPNowcast for the US Q3 GDP growth run rate was steady at +2.5%. The positive contribution from the spending report helped to offset some of the weakness in industrial output in Jul. Initial jobless claims have shown little change in the broad trend of low initial claims, with continuing claims remaining stubbornly elevated.
The broader global growth backdrop stepped down last week. Euro area and UK GDP growth slowed in Q2 as expected – likely reflecting a slowdown after tariff front-running activity in Q1. Japan’s GDP firmed at +0.3% after 0% in Q1. Key data out of China also reflected slower investment growth, slower retail sales growth, and slower industrial output growth for Jul. Even the latest RBA decision cautioned that trade policy developments were “expected to have an adverse effect on global activity”. With new reciprocal tariffs and trade agreements now in place for many, but not all, key trading partners, the crucial question for markets is how economies will adapt to the new tariff regime.
The overall inflation picture still poses a challenge for the Fed, with inflation remaining persistent and additional tariff effects likely, due to their lagged introduction and business uncertainty over final rates. Last week, a rising chorus of calls for a 50bps rate cut by the Fed in Sep was quickly swept aside after the hotter PPI data. The market is still holding onto more aggressive pricing for a rate cut, but the probability has been pared back markedly (Source: CME FedWatch). This diverges from the Fed’s cautious stance, though even within the Fed, there is dissent – mostly over the timing of the path forward. Our focus now shifts to the important Jackson Hole symposium this week.
Outlook for the week ahead: Jackson Hole, Prelim S&P PMIs August, Global Inflation: UK, Canada, Euro area, & Japan.
This week, the focus will shift from data to commentary. The market will be looking to Fed Chair Powell for clarity and guidance on the path of monetary policy. His speech at the annual Jackson Hole Symposium will provide an important lens for how the Fed is thinking about the inflation-labor market dual mandate amid the still notable unknowns on tariffs and complicated by dissent within the Committee and a hostile political backdrop.
Key factors & events to watch this week:
Jackson Hole Symposium, the US Federal Reserve, and the Monetary Policy Outlook.
- The Jackson Hole Symposium is the key event this week from 21-23 August, with the theme “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy”.
- US Fed Chair Powell’s speech is the key highlight, and this is scheduled for Friday, 22 August – the topic of his speech is the Economic Outlook and Policy Framework Review. While he is unlikely to give explicit forward guidance, it will be an opportunity to explain how he is weighing the recent data (persistent inflation versus weaker payrolls), the uncertainty over tariffs, and signalling on the path of policy settings.
- Other central bank speeches may also provide some context for expectations of a global slowdown amid rising tariffs.
- The FOMC Minutes of the last meeting will be released. Of interest in the last meeting was the dissent among committee members regarding the policy decision.
- Other speeches; notably, Vice Chair (Supervision) Bowman and Governor Waller will be speaking earlier in the week at the Blockchain Symposium.
US Domestic Demand and Activity.
Key housing data for Jul will be released this week and will provide an important input into the view of Q3 growth momentum.
- Building permits for Jul are expected to be little changed at 1.39m annualized, from 1.39m in Jun.
- Housing starts (will feed into the GDP nowcast run rate) are expected to moderate further in Jul to 1.3m annualized, from 1.32m in Jun.
- Existing home sales for Jul are expected to be little changed at 3.92m annualized, down slightly from 3.39m in Jun.
- Of note has been the recent rebound in mortgage applications – last week increasing by +10.9% as mortgage rates have begun to moderate. Most of this increase was led by refinance applications.
- US initial claims are expected to remain low at 227k for the wk ending 16 Aug, up slightly from 224k in the prior week. We will continue to watch the level of continuing claims, which remain elevated at 1.953m people.
Global Central Banks and Inflation.
- The RBNZ will meet this week and is expected to cut rates by a further 25bps.
- Global CPI reports will be in focus for several important central banks.
- Canada’s headline CPI for Jul is expected to be little changed at +1.9% over the year, with the monthly rate expected to increase by +0.4% in Jul from +0.2% in Jun. Measures of core inflation are expected to stay firm with the trimmed mean at +3% and the median at +3.1%.
- UK CPI for Jul is expected to edge higher to +3.7% in Jul, after rising to +3.6% in Jun. Rising domestic inflation has been led by key government policy changes.
- The Euro area final CPI for Jul is expected to confirm the prelim headline inflation rate at +2%, with core inflation remaining at +2.3%. Services inflation is expected to slow to +3.1% in Jul.
- Japan National CPI for July is expected to show that the main BoJ measure of underlying inflation, core CPI ex fresh food, moderated from +3.3% in Jun to +3% in Jul.
S&P Flash PMIs for August
S&P Flash PMIs for August will be released later in the week, providing further insight into tariffs’ effects on global output, trade, prices, and business sentiment.
This week, the US Treasury will auction and settle approx. $490bn in ST Bills, raising approx. $89bn in new money. The US Treasury will also auction the 20-year Bond and 30-year TIPS this week, and both to settle at the end of the month.
QT this week: Approx $12bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
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 | Aug 11, 2025
Summary; The key events shaping the week commencing 11 August 2025 are: US inflation; CPI, PPI, Import Price Index, US Retail Sales, Global Growth; UK, Japan, and Euro area GDP Q2, and the RBA Monetary Policy Meeting.
Recap from last week: Testing US Economic Resilience at the Start of Q3
While it was a light data week last week, economic releases continued to point to a cautious, moderating US economy at the start of Q3. Further US labor market data showed signs of softening, and divergence in key surveys pointed to an economy with uneven momentum. The backdrop of business hesitation and moderating activity sets the stage for the next critical phase, as the effects of the new tariff regime begin to manifest in official data.
The US PMI surveys for Jul showed more of a two-speed economy, with manufacturing activity continuing to weaken, but offset by expansion in the services sector. However, the two services PMI reports differed somewhat: the ISM survey showed an almost stalled services sector in Jul while the S&P survey showed an accelerated expansion in output. Diving deeper into the S&P US composite PMI for Jul, showed output growth “narrowly led by surging demand in the tech sector alongside rising financial services activity”. The details underlying the stronger services report, and all the PMI reports for July, showed continued subdued optimism in the outlook, caution over hiring, and firmer input and output price increases amid rising tariffs.
This cautious business outlook was reflected in lending standards and demand for credit in the latest US Senior Loan Officer Survey for Q2. Tighter lending standards and weaker demand for credit were reported for commercial and industrial loans and commercial real estate loans. On the consumer front, demand for household mortgages was weaker, standards for credit card loans tightened, and demand for credit card and other consumer loans softened. Demand for auto loans, however, strengthened, consistent with the spike in auto purchases in March and April to front-run tariffs.
Last week’s limited labor market data continued to show a cautious, low-hiring, slow-firing environment. The Conference Board Employment Trends report for Jul reflected that companies have “become hesitant” amid tariff uncertainty, noting, though, that firms have been “pressing pause” rather than leaning into layoffs. The latest initial claims report supports this, but the report shows a concerning trend. While initial claims have fallen back to lower levels, the pool of continuing claims increased further in the latest week, indicating that it still may be difficult to find new work. This increase in continuing claims, which began in late May/Jun, has not yet cleared, and the number reached another near-term high since 2021, of 1.974m in the prior week ending 26 Jul.
A key driver of this elevated caution and moderating activity has been related to the uncertainty around the new tariff regime. Last week, reciprocal tariff rates went into effect, which may reduce some of the uncertainty for firms. The crucial question will be how firms will respond and adapt to tariffs, especially regarding pricing, margins, and sourcing decisions. However, there are still many moving parts on the tariff front. This includes the important trade agreement still under negotiation with China, sectoral tariffs under investigation by the U.S. Trade Representative, and the likely announcement of more sectoral tariffs in the next week or two. In addition, there is the threat of additional tariffs being used as sanctions to achieve geopolitical objectives.
In light of the recent weaker labor market data, moderating activity, and continued uncertainty, it wasn’t surprising that the tone of Fed officials shifted this week. Some speeches noted that the weak jobs data was “concerning” and could signal a “turning point” in the economy. They explicitly discussed the challenges of making policy in a world of tariffs and a two-sided risk of both slowing growth and persistent inflation. Markets are continuing to price in at least two rate cuts by the FOMC for the remainder of the year (source: CME FedWatch).
Outlook for the week ahead – US inflation; CPI, PPI, Import Price Index, US Retail Sales, Global Growth; UK, Japan, and Euro area GDP Q2, and the RBA Monetary Policy Meeting
This week’s focus will be on the central narrative around the tug of war between persistent US inflation and slowing growth. US data will provide further insight into how tariffs are impacting inflation, as well as the first robust input for the Q3 GDP outlook, with key spending and output data for July. Outside of the US, economic growth will also be in focus, offering a view of the tariff impact from a global perspective.
Key factors & events to watch this week
US inflation will be the most important theme of the week:
The US CPI, PPI, and import price index reports will provide three important perspectives on inflation, a detailed update on how tariff effects may be rippling through inflation data, and who is bearing the burden of those tariffs. It will likely be too early to get a read on the ‘finalised’ reciprocal tariffs announced last week.
- US headline CPI is expected to ease over the month to +0.2% in Jul, from +0.3% in Jun. Over the year, headline CPI is expected to edge higher to +2.8% in Jul from +2.7% in Jun.
- Core CPI is expected to increase over the month to +0.3% in Jul from +0.2% in Jun. Annual core CPI is also expected to increase to +3% in Jul from +2.9% in Jun.
- US headline PPI is expected to increase by +0.2% over the month in Jul, from 0% in Jun. Annual headline PPI is expected to increase to +2.5% in Jul from +2.3% in Jun.
- Core PPI is expected to increase by +0.2% over the month in Jul, up from 0% in Jun. Annual core PPI is expected to increase by +2.9% in Jul, up from +2.6% in Jun.
- The import price index is expected to be unchanged at 0% in Jul, after increasing by +0.1% in Jun. Annual import prices would then fall by -0.4%. However, the more important measure of import prices is excluding fuels. This has remained firm over the last few months, with the 3-month annualized rising to +1.9%, now above the annual rate of +1.2% growth in import prices ex fuel imports.
- The export price index is expected to moderate slightly over the month to +0.3% in Jul from +0.5% in Jun.
US domestic demand and activity:
Key data releases will provide a further update on the health of the US consumer and manufacturing activity.
- US retail sales for Jul are expected to increase by +0.5% in Jul, after increasing by +0.6% in Jun. Last week, US vehicle sales for Jul came in stronger than expected, likely helping to boost retail sales. The core retail control group, which feeds into the GDP result, will be important: in Jun this increased by a more robust +0.5%.
- US industrial production growth is expected to be flat in Jul at 0%, after increasing by +0.3% in Jun.
- Initial claims are expected to moderate to 220k last week from 226k in the week prior. The direction of continuing claims will be important after reaching a near-term high of 1.974m in the prior week.
US Fed speeches:
Will be limited this week.
Global growth will also be in focus this week:
Data will provide some insight into growth headwinds from the new trade and tariff regime.
- The prelim Euro area GDP for Q2 is expected to be unchanged at +0.1% over the quarter.
- The prelim GDP for Japan in Q2 is expected to increase by +0.1% over the quarter, up from 0% in Q1.
- The UK GDP for Q2 is expected to moderate to +0.1% growth from +0.7% in Q1.
Aussie data and the RBA monetary policy meeting:
- The RBA will meet this week and is expected to cut rates by 25bps. Last week’s CPI data for Q2 likely helped to ease some of the inflation concerns, with underlying trimmed mean inflation coming in lower than expected, and the annual rate moving further into the RBA’s target band of 2-3% inflation for the second quarter in a row. The RBA outlook and guidance for the path of rate cuts will be a key focus.
- After the meeting, the Aus labour market data for Jul is expected to show some improvement, with net employment increasing by +25k after a more modest +2k increase in Jun. The unemployment rate is also expected to ease from 4.3% in Jun to 4.2% in Jul.
US Treasury auctions:
This week, the US Treasury will auction and settle approx. $615bn in ST Bills, Notes, and Bonds, raising approx. $132bn in new money.
QT this week: Approx $60bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $3.2bn in Notes and Bonds will be redeemed and roll off the Fed 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 Kim | Aug 4, 2025
Key events this week: US & global Services PMIs, US Factory Orders, Fed speeches, BoE Monetary Policy Meeting
Recap from last week: Growth Concerns Mount as US Labor Market Softens
This past week delivered a pivotal set of US data that challenged the narrative of a resilient US economy. At its meeting last week, the FOMC kept policy settings unchanged, maintaining a “modestly restrictive” stance. This decision was based on the premise that, while growth had slowed in the first half of the year, inflation remained somewhat elevated, and the labor market was at or near maximum employment. However, the subsequent release of weaker-than-expected payroll data for Jul may have shifted that baseline, indicating that the economy is transitioning from the tariff sentiment shock to more tangible growth and inflation risks.
Not everyone on the committee agreed with the Fed’s decision to stay on hold. Two dissenting voters, Waller and Bowman, both preferred to cut rates by 25bps at this meeting. They cited the need to move policy towards a more neutral setting to “proactively hedge against a slowing economy,” arguing that tariff inflation effects were likely to be temporary. Both members also specifically cited risks to the labor market amid slowing growth, with Waller noting that the Fed’s “wait and see” approach was ‘overly cautious’ and risked policy falling behind the curve.
The dissenters’ concerns were arguably validated by the Jul jobs report. Non-farm payroll growth came in weaker than expected at 73k (below expectations of 108k), but it was the net revisions of -258k payrolls to May and Jun that caught everyone’s attention. As a result, the 3-month average was revised to a mere 35k payrolls in Jul, a notable drop from the 3-month average of 150k reported in Jun. The Jul growth was entirely driven by private payrolls in the services sector, while goods-producing industries and government payrolls declined.
Despite the weakness in headline payrolls, there were some nuances in the data. The more intense weakness in payroll growth appears to be centered in Jun (with only 3k growth in private payrolls), which is consistent with the sharp fall in aggregate hours worked for that month. Some good news in this report was that aggregate hours worked rebounded strongly in Jul, fully reversing the Jun decline. Similarly, average hourly wage growth also increased versus Jun, suggesting some rebound in nominal income for Jul. The slowdown in payroll growth is consistent with the story from initial claims, which spiked through Jun and then slowed through Jul. However, the accumulation of continuing claims has yet to clear, remaining elevated at around 1.95 million continuing claims. This indicates that a weakness in hiring is persisting. Further, the hiring rate in the JOLTS data for Jun fell to 3.3, approaching the pandemic low of 3.1. Low/falling hiring is an important determinant for the potential of the unemployment rate to rise in the future. The unemployment rate has continued to edge higher, from 4.1% in Jun to 4.25% in Jul, but remaining within the same range of the last year. The overall employment-to-population ratio, also a key metric, has fallen over the last three months to 59.6% in Jun, and is back on par with Dec 2021 levels.
The weaker labor market data is now consistent with the broader slowdown in growth seen in the first half of the year. The US Q2 GDP (advance release) increased by a seemingly robust +3% annualized, but this was primarily led by a positive contribution from net exports, which was an unwind from tariff front-running in Q1. The real story was the underlying domestic demand, which has continued to slow. The final sales to domestic purchases, a proxy for domestic demand, slowed to a +1.1% annualized pace in Q2, down from +1.5% in Q1 and +3% in Q4 2024. At the same time, US PCE inflation was also more persistent in Jun, providing a further challenge for the Fed as it balances its dual mandate. Inflation has been edging higher over the last few months, with firming underlying inflation led by core goods price growth that continued to accelerate in Jun. A key highlight was the median and trimmed mean measures of underlying inflation both increasing at the same time, signalling that underlying inflation pressures firmed in Jun and likely became more pervasive.
The forward-looking picture for growth is equally mixed. The final S&P PMIs for Jul so far indicate that US manufacturing momentum slowed at the start of Q3 as the pre-tariff unwind continues. This comes against a backdrop of slowing global manufacturing activity in Jul, with the S&P global manufacturing output PMI falling back to a stalled pace. The final S&P services PMIs will be released this week, helping to complete the picture of private sector activity in Jul. With further reciprocal tariff rates announced last week and more announcements to come, expectations are shifting for slow growth to continue into the second half of the year.
By the end of the week, markets had digested the growth, labor market, and inflation data, going from pricing in only one rate cut for the remainder of the year to three (Source: CME FedWatch). This suggests that slow growth is currently the primary concern over lingering inflation. These rate-cut expectations will continue to evolve. There are several more labor market and inflation reports, as well as the Fed’s Jackson Hole symposium, between now and the Sept Fed meeting.
Outlook for the week ahead: US & global Services PMIs, US Factory Orders, Fed speeches, BoE monetary policy meeting
A somewhat quieter week on the data front with the key highlights being the ISM and S&P services PMIs for Jul – helping to build out the view of private sector momentum amid slowing manufacturing activity and the new tariff regime. We expect continued headline risk around tariff announcements.
Key factors & events to watch this week:
Central Banks
- US Fed speeches will be in focus this week, mostly to gauge Committee reactions to the weaker US labor market data. Of note is a speech scheduled for Michele Bowman for Saturday. Initial reactions from Committee interviews on Friday indicated they were not surprised by the slowing labor market amid the tariff-led disruptions and slowing growth, and some suggested that the revisions may point to a broader weakening of the economy (source: Bloomberg).
- The BoE will meet this week and is expected to cut rates by 25bps, supporting its guidance of a gradual withdrawal of policy restraint. Recent data suggests both growth and hiring have slowed amid domestic policy changes, while inflation has recently firmed somewhat.
US data will feature mostly manufacturing and services activity.
- US Factory Orders for Jun are expected to fall by 4.9% in Jun after stronger growth in May (+8% – led by larger aircraft orders).
- The ISM services PMI for Jul is expected to increase from 50.8 in Jun to 51.5 in Jul. This will feed into an early read of the Atlanta Fed GDP nowcast for the Q3 growth run rate.
- The full report for international and wholesale trade for Jun will be released.
- Initial and continuing jobless claims will remain in focus. Initial claims are expected to edge slightly higher to 221k last week, up from 218k in the previous week.
The remainder of the S&P Global Services PMIs will be released this week, providing further insight into private sector activity after the weaker manufacturing PMIs last week.
China’s trade data for July will be released this week and should provide some insight into any effects from tariff-led disruptions.
Labor market data:
- Canada’s labour market report for Jul will be released at the end of the week. Employment growth is expected to continue to moderate, increasing by 15k in Jul after increasing by 83k in Jun. The unemployment rate is expected to increase to 7% from 6.9% in Jun. Last week, the BoC kept rates on hold as expected. The Committee did guide that, amid the unpredictable tariff situation facing Canada, there may still be a further need for a reduction in the policy interest rate.
- NZ Q2 employment is expected to fall slightly by -0.1% over the quarter, down from +0.1% in Q1.
This week, the US Treasury will auction and/or settle approx. $535bn in ST Bills, raising approx. $116bn in new money. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond this week, and will settle next week.
QT this week: Approx $17bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
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 | Jul 28, 2025
Key events this week: FOMC, BoJ, & BoC meetings; US non-farm payrolls, PCE inflation, & Q2 GDP; Aus CPI Q2; Euro area Q2 GDP & CPI prelim Jul; Aug 1 tariffs.
Recap from last week: Easing Uncertainty on the Tariff Outlook
This past week saw the first of several key central bank decisions as well as the latest prelim global PMIs for Jul. These events unfolded against the backdrop of evolving trade negotiations heading towards the next 1 Aug deadline.
Positive news on trade deals emerged during the week, helping to reduce the immediate risks of re-escalation as the next trade deadline approaches. Deals with Japan and the EU were announced, featuring tariff levels lower than previously anticipated, which is contributing to improved sentiment. However, some key details of these deals remain unclear. Meanwhile, negotiations with China appear to be progressing, with more talks scheduled this week and another extension likely. However, the upcoming 1 Aug deadline will likely bring announcements for other trade partners, and some headline risk remains. Once there is at least some certainty over tariff levels, the focus will increasingly shift to the effects of these tariffs on firms, inflation, and growth.
The concern over trade effects from tariffs continued to influence central bank communications last week. However, these communications also indicated a decreased risk of the ‘worst-case’ tariff scenario unfolding. The ECB kept rates on hold as expected. The decision noted that inflation was at the medium-term target of 2%, prior cuts were bolstering Euro area resilience, and growth was developing in line with, if not better than, expected. ECB President Lagarde noted that “we are in a good place because inflation is at 2%”. Guidance continued to reiterate a meeting-by-meeting, data-dependent approach, with President Lagarde indicating that ‘we are in a ‘wait-and-watch situation’ on further rate cuts. Several changes were made to the guidance. The first reflected this easing in worst-case fears, with previous commentary around ‘exceptional uncertainty’ removed. There was also the addition of a note that interest rate decisions will be based on the assessment of the inflation outlook and risks.
Some easing in tariff uncertainty was also evident in the latest RBA minutes. The RBA minutes outlined key reasons behind the surprise decision to stay on hold at the last meeting. The decision reflected a broad agreement to wait for more information to confirm that inflation remains sustainably on track to reach the 2.5% midpoint target. While acknowledging that underlying inflation was expected to decline further, the majority of members felt it was prudent to wait, given that some recent data had been slightly stronger than expected, especially the monthly inflation indicator suggesting the Jun quarter inflation could be firmer. Lowering the cash rate for a third time in four meetings did not align with their ‘cautious and gradual’ approach to easing policy rates. The reduced likelihood of severe global downside scenarios meant that there was less pressure to cut rates as a pre-emptive measure. Guidance pointed to more rate cuts to come, but the timing and pace will be contingent on incoming economic data, particularly inflation, while taking a cautious approach.
In the latest round of prelim PMIs for Jul, trade and tariff uncertainty remained a key theme; however, conditions broadly improved in Jul. This improvement going into Q3 was led by a strengthening in services activity, while manufacturing momentum remained subdued, led by a notable weakening in manufacturing conditions in the US and Japan. Broadly, inflationary pressures remained persistent/elevated; the exception was easing cost pressures in Japan. The Eurozone report also noted that the stronger euro and US tariffs are likely to exert downward rather than upward pressure on inflation in the coming months. With trade policy and tariffs still a key uncertainty, confidence in the outlook remained subdued, and firms tended to remain cautious around hiring, especially across manufacturing firms (except in Aus).
US data last week was limited. As we close out Q2, growth in new and existing home sales for Jun remained subdued. Durable goods orders in Jun also weakened (even after excluding the effect of large value aircraft orders), while shipment growth continued to improve. The Atlanta Fed GDP nowcast for Q2 US growth remained unchanged at +2.4% this week. The advance Q2 GDP estimate will be released this week. The US prelim S&P PMI for Jul provided a somewhat positive, albeit mixed, view at the start of Q3. According to the flash PMI, growth momentum in the US increased at a faster pace in Jul. However, this growth was driven by a stronger services sector, while manufacturing contracted for the first time this year, partly due to fading “tariff front running.” It’s worth noting that the manufacturing output PMI continued to expand, though stepped down from the more widespread expansion in Jun.
Outlook for the week ahead: FOMC, BoJ, & BoC meetings; US non-farm payrolls, PCE inflation, & Q2 GDP; Aus CPI Q2; Euro area Q2 GDP & CPI prelim Jul; Aug 1 tariffs.
Our attention will be divided across multiple fronts this week: further major central bank decisions, important US economic data, a busy lineup of corporate earnings, and headline risk from another looming tariff and trade-deal deadline.
Key factors & events to watch this week;
There will be three key central bank decisions this week, following on from the ECB last week. In all cases, policy settings are expected to remain unchanged; however, we’ll be alert to any shifts in signalling, especially as it relates to uncertainty in the outlook.
- The FOMC is expected to keep policy settings unchanged. Data this week, including non-farm payrolls, Q2 growth, and PCE inflation, are expected to be important in the lead-up to the Sept meeting, when markets are expecting/pricing in the next rate cut.
- The BoC is expected to stay on hold at this meeting. At the past few meetings, the BoC has maintained its “less forward-looking than usual” guidance. At the last meeting, an easing in tariff rhetoric was noted, but this was against a backdrop of significant uncertainty.
- The BoJ is also expected to stay on hold at this meeting. A trade deal between the US and Japan was announced last week, helping to alleviate some trade uncertainty, even amidst domestic political complexities. It’s been noted that the BoJ may consider adjusting its inflation outlook at this meeting, given that inflation has remained above its 2% target for several years. Depending on the broader impact of tariffs on domestic activity, markets are anticipating a potential rate hike late in 2025 or early in 2026 (Source: Bloomberg)
US data will feature a comprehensive suite of top-tier US economic data, offering important insights into the state of the labor market, inflation, growth, spending, incomes, and trade. These releases will be pivotal in assessing inflation and the economy’s resilience amid rising tariffs and guiding expectations for the path of Fed policy.
- One of the key reports this week will be the US labor market reports. US non-farm payrolls are expected to grow at a slower pace of 108k in Jul, down from 147k in Jun. The previous month’s report showed a smaller contribution from private sector payroll growth, and this will be an important indicator to watch.
- The unemployment rate is expected to increase to 4.2% from 4.1% in Jun.
- The Fed preferred PCE inflation measure is expected to increase in Jun. Headline PCE inflation is expected to increase by +2.5% in Jun, up from +2.3% in May, with the monthly rate increasing by +0.3% in Jun, up from +0.1% in May.
- Core PCE inflation is expected to increase by +2.8% in Jun, up from +2.7% in May. The monthly rate is also expected to increase by +0.3% in Jun, up from +0.2% in May.
- US personal spending is expected to rebound in Jun by +0.4% after falling by -0.1% in May. Personal income is also expected to rebound by +0.2% after falling by -0.4% in May.
- The advance Q2 GDP will be released this week; growth is expected to reflect trade and inventory volatility due to tariffs. Q2 growth is expected to rebound to +2.4% annualized, after a -0.5% annualized fall in Q1. The view of underlying domestic growth will be in focus, especially the contribution from personal consumption.
- Other important data releases will include; the employment cost index for Q2 (expected to ease to +0.8% over the quarter), JOLTS – with job openings also expected to slow again to 7.5m in Jun, and the ISM manufacturing PMI for Jul which is expected to show little change with conditions remaining at a subdued 49.5 in Jul, from 49 in Jun.
Euro area growth and inflation
- Euro area prelim GDP for Q2 is expected to slow to 0%, from +0.6% in Q1, likely affected by trade disruptions.
- The prelim headline Euro area CPI for Jul is expected to ease to +1.9%, from +2% in Jun. Core CPI is expected to be unchanged at +2.3%.
Australia CPI
- The important quarterly CPI report for Q2 will be released this week. This report takes on added significance in light of the RBA’s latest decision to hold, rather than cut, interest rates. This decision was partially based on a series of monthly inflation readings that had suggested that inflation could come in slightly higher than expected in Q2. Headline CPI for Q2 is expected to ease slightly to +0.8% in Q2, from +0.9% in Q1. Annual inflation is expected to ease to +2.2% from +2.4%. However, it will be the trimmed mean measure (core inflation) that will be in focus. Trimmed mean CPI is expected to be unchanged at +0.7% in Q2. This would see annual trimmed mean inflation slow to +2.75%, from +2.9% in Q1.
The full suite of S&P Global PMIs for Jul will begin to be released, starting with manufacturing this week.
The next deadline for trade deals and tariff announcements is 1 Aug this week.
It will also be a busy week of US corporate earnings.
This week, the US Treasury will auction and/or settle approx. $727bn in ST Bills, Notes, Bonds, FRNs, and TIPS, raising approx. $170bn in new money.
The latest quarterly refunding announcements will be made on 28 and 30 Jul this week.
QT this week: Approx $31.6bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $2.7bn of Notes and 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
