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
by Kim | Jul 21, 2025
Key events this week: S&P Prelim PMIs July, ECB monetary policy meeting, RBA Minutes
Recap from last week: Tariff echoes in inflation ahead of the FOMC
Last week’s US inflation and growth data offered important insights ahead of the upcoming FOMC meeting. Data provided some early insights into how tariff effects may be rippling through inflation figures, who is bearing the burden of those tariffs, and the impact of tariff uncertainty on growth momentum. The focus around the Fed’s policy settings has intensified, reflecting both external pressure for rate cuts and internal divisions within the Committee. Notably, Governor Waller’s speech last week, delivered following the inflation data, reiterated his argument for a rate cut at the upcoming July meeting.
The key concern for many has revolved around the tariff impacts on inflation, especially at a time when US inflation is not yet back to the 2% target (according to the Fed). Tracking these effects will likely remain tricky, particularly given that the tariff rates and the trade deal landscape continue to shift. Furthermore, it remains unclear what the average pass-through rate will be. Nevertheless, US data released last week provided three distinct perspectives on the inflation impact so far of tariffs on the US domestic economy: the CPI, import prices, and the PPI.
Firstly, US CPI increased as expected. The CPI, which includes services, imports, and sales taxes, saw headline inflation rise to +2.7% in Jun from +2.4% in May, with the monthly pace accelerating to +0.3% as expected. While tariffs likely played a role, other factors also contributed.
Measures of underlying inflation firmed. The core CPI increased to +2.9%, albeit lower than the expected +3%. Core goods prices have been firming over shorter annualized timeframes, showing an even stronger acceleration in the latest month, likely reflecting some early tariff impacts. Similarly, core services (excluding energy services) inflation increased over the month and accelerated slightly over the year. However, continued shelter price disinflation provided an offset to these increases.
Notably, both the trimmed mean and median CPI measures of underlying inflation accelerated in Jun on both an annual and monthly basis. This suggests that inflation increased within the core of the distribution, rather than due to larger outlier effects, highlighting a broadening effect of inflation among expenditure categories this month.
The second perspective of tariff impacts comes from a more upstream view, helping to answer whether exporters into the US are bearing or sharing the burden of tariffs. Since the import price index data excludes tariffs, exporters absorbing tariffs would show up as a fall in the import price index. While there may be cases where exporters are bearing, or sharing, some part of the tariff burden, on aggregate, the data shows little change in import prices.
Import prices excluding volatile fuel import prices increased by +0.1% in Jun, with the 3-month annualized rate lifting back up to +1.9%. The annual rate has hovered between +1.2% and +1.4% over the last four months. It’s still quite early in the process, especially as further trade deals and tariff rates are negotiated or imposed.
The final perspective considers the tariff impacts on domestic producers via the PPI. While the CPI includes imports and sales taxes, the PPI excludes them. However, tariff effects could still be reflected in the PPI through pressures from rising input prices.
So far, pressure from rising input prices has not been broadly reflected in rising selling prices by domestic producers. The headline PPI annual rate slowed to +2.3% in Jun from +2.7% in May. The monthly PPI in Jun was flat at 0%, versus +0.3% in May. However, PPI goods prices have been firming year to date, with the annual rate rising to +1.7% and PPI goods excluding food and energy rising to +2.6% in Jun. This may align more with varying surveys pointing to more widespread increases in input prices. The PPI final demand services prices provided a broader offset in Jun, falling by -0.1% over the month, and slowing to +2.7% over the year in Jun from +3.5% in May.
For the moment, the picture of tariff impacts on inflation suggests: direct impacts via the CPI appear to have firmed in Jun; exporters (in aggregate) do not appear to be bearing the tariff burden; and goods producer prices have been firming, possibly due to tariffs, albeit remaining at a low level. Together, the CPI and PPI data suggest that the Fed-preferred PCE inflation measure firmed in Jun with headline likely increasing to +2.5% and core PCE rising to +2.7%.
While the inflation picture remains murky amid tariff uncertainty, recent activity data reflect that ongoing uncertainty via slower growth momentum. Despite a few bright spots in the data last week, the Atlanta Fed GDP nowcast for the Q2 growth run-rate slowed further to +2.4%. Although retail sales rebounded in Jun, a downward revision to the retail ‘control group’ in May resulted in a modest drag on growth from consumer spending. Housing starts firmed only slightly in Jun, while the four-month trend continues to slow. Importantly, the most recent initial claims fell, but continuing claims remained at elevated levels, indicating that “slow hiring, slow firing” persists. Industrial production increased after two months of stalled output growth.
The latest Fed Beige Book survey indicated that activity increased slightly from late May through early Jun, an improvement over the last report. According to the report, “uncertainty remained elevated, contributing to ongoing caution by businesses”, especially related to hiring decisions. Tariff-led input pricing pressure remained ‘modest to pronounced’, especially in manufacturing and construction, while there were mixed reports on the degree of pass-through to customer prices. The report specifically highlighted that;
Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer. (Source: Fed Beige Book – Jul 2025)
Against this backdrop of evolving impacts of tariffs on inflation and growth, the US Federal Reserve will meet on monetary policy on 30 July (next week). Recent comments from Fed officials highlight the varied perspectives on the path forward.
Last week, Governor Waller reiterated his case for a rate cut at the next meeting. This was based on the premise that, while the US economy is still growing, momentum has slowed significantly, and the risks to the FOMC’s employment mandate have increased. He argued that, based on the current data, policy settings should be around neutral. He advocated for a risk management approach, suggesting a shift in the timing of the two rate cuts that the majority of the Committee projected back in Jun. A cut sooner, in July, he argued, would still keep policy restrictive, even if inflation comes in firmer later in the year. Furthermore, if the economy weakens from here, a July cut would ensure the FOMC doesn’t fall behind the curve. For now, markets are pricing rate cuts in Sept and Dec (Source: CME FedWatch).
Outlook for the week ahead: Tariffs & trade negotiations, S&P Prelim PMIs July, ECB monetary policy meeting, RBA Minutes
It will be a mostly quiet data week.
The latest S&P prelim PMIs for Jul will be released this week, providing the first view of momentum going into Q3. On the central bank front, the ECB will meet this week, and US Fed speeches will be limited ahead of the FOMC meeting next week, though Fed Chair Powell will be giving ‘opening remarks’ this week. Pressure has been mounting on the Fed Chair in recent weeks, and threats/posturing around his tenure may be a source of headline risk. Similarly, the latest 1 Aug tariff/trade deal deadline is approaching at the end of next week. The focus this week is likely to be on negotiations with Europe and Japan.
US earnings results remain in focus this week.
Key factors & events to watch this week;
US data will be limited this week, with the remaining housing data and durable goods orders for Jun to be released.
- Durable goods orders for Jun are expected to fall -10.3% after a +16.4% increase in May – this will feed into the almost final Atlanta Fed GDP nowcast for Q2 US growth.
- US existing home sales for Jun are expected to be unchanged at 4.0m (annualized), from 4.03m in May.
- New home sales are expected to increase by 0.65m in Jun, up slightly from 0.623m in May.
Central Banks
- The ECB will meet on monetary policy this week, and is expected to keep its policy rate unchanged at 2%.
- The RBA minutes of the latest meeting will be released. This might hold some further insight into the decision to stay on hold, rather than cut as markets had expected.
- The latest BoC Business Outlook Survey will be released.
- Despite this being the blackout period ahead of the FOMC meeting next week, Fed Chair Powell will give opening remarks at a conference in DC, while Vice Chair (Supervision) Bowman will deliver a speech on innovation at the same conference. Details are here.
S&P Prelim PMIs for the major economies, plus Australia, for Jul will be released. This will provide some insight into growth momentum at the start of Q3, progress on prices, and the impact of renewed tariff threats on sentiment for the outlook.
This week, the US Treasury will auction and/or settle approx. $470bn in ST Bills raising approx. $67bn in new money. The US Treasury will also auction the 10-year TIPS and the 20-year Bond this week – both will settle next week.
QT this week: Approx $9.8bn 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 14, 2025
Key events this week: US – CPI, PPI, Import Prices, & Retail Sales, Global CPI – Canada, Japan, Euro area, & the UK
Recap from last week: FOMC uncertainty over tariff impacts, while tariff threats reignited
The news on tariffs last week was mostly negative. The imposition of higher tariff rates was threatened across a range of trading partners, and several sector-specific tariff rates were floated. Another extension was granted on the implementation of reciprocal tariffs, providing a small window to negotiate leading up to the next deadline of 1 August. With tariff deadlines pushed out for another few weeks, uncertainty remains a significant factor.
Details on deals remain limited. It seems like only the UK framework has been signed off. There are even question marks over the framework agreed to with Vietnam (source: Politico). Further threats were made against Canada, Mexico, Europe, Brazil, as well as increasing the blanket tariff rate to 15-20% “on most” trading partners (Source: Bloomberg). Sector-specific tariffs were announced, which included a 50% tariff on copper and pharmaceuticals (which has a longer 1-2year lead time).
This latest episode underscores that uncertainty over the “final” form of tariffs is likely to stay elevated, which has implications for policymakers. Indeed, rather than a definitive ‘final’ version of tariffs, we may need to accept that tariff threats, uncertainty, and bargaining could be defining features of the current administration’s trade policy. Nonetheless, a decision on the blanket tariff increase will be important. The reciprocal tariffs remaining at the lower level make it possible for exporters and importers to share the tariff burden to maintain market share, likely resulting in little consumer inflation impact. For example, data from the BoJ last week indicated that Japanese auto manufacturers have so far appeared to absorb the (albeit much higher) 25% auto tariff to maintain US market share (source: Bloomberg). More broadly, though, higher blanket tariff rates may make it unprofitable for exporters and importers to absorb. This may lead to larger inflation impacts and a greater demand shock for exporters if US consumers pull back from higher-priced items. This is something the Fed is watching: higher prices and a slower growth backdrop.
This was reflected in the latest FOMC minutes, which highlighted two major themes. The first concerned the impact of tariffs on inflation. Considerable discussion revolved around the persistent uncertainty over the timing, size, and duration of these tariff effects on inflation. This occurred against a backdrop where Fed commentary still acknowledged that the starting point for tariff impacts is from a base where inflation remains “somewhat elevated.” Generally, there was agreement that growth and the labor market were solid, while monetary policy was moderately or modestly restrictive. This left the committee “well-positioned” to wait for more clarity on the outlook for inflation and economic activity.
While all participants viewed it as appropriate to keep policy unchanged at this meeting, there was greater divergence over the outlook for monetary policy, and this was the second major theme of the minutes. Most participants favored some reduction in the target range for the federal funds rate (FFR) this year, noting that upward pressure on inflation from tariffs would be temporary or modest, or that there could be some weakening in economic activity or the labor market. A couple of participants (Waller and Bowman) favored a cut as early as July. Conversely, some participants saw the possibility of no rate cuts in H2 of 2025. These participants noted that recent inflation readings had continued to exceed targets, that there was still some upside risk to inflation, or that they expected the economy to remain resilient; they also suggested the current target range for the FFR might not be far above its neutral level. Markets continue to price in two rate cuts this year (source: CME FedWatch)
There were two central bank meetings last week – both still focused on their inflation dynamics. The RBA shocked markets by remaining on hold – markets were expecting a 25bp cut. The decision was a 6-3 split in favour of a hold, with 3 voting for a cut. The RBA Governor noted in her press conference that the decision was “about timing rather than direction”. The Board kept rates on hold at this meeting because, although the last two monthly inflation reports had shown good progress, some components suggest that the comprehensive quarterly report for Jun could come in higher than forecast. Furthermore, the key trimmed mean inflation rate had only just moved into the RBA’s target band, so with unemployment remaining low, the Board judged it had time to confirm inflation was on the path to reach the middle of the target range on a sustainable basis.
The RBNZ stayed on hold as expected. However, the easing bias was added back into the statement, noting that if inflation pressures continue to ease as projected, the Committee expects to lower the official cash rate further. The case for keeping the OCR on hold at this meeting highlighted the elevated level of uncertainty and the benefits of waiting until August in light of near-term inflation risks. Some members emphasized that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.
Outlook for the week ahead: US – CPI, PPI, Import Prices, & Retail Sales, Global CPI reports; Canada, Japan, Euro area, & the UK
The main focus of the week ahead will be on inflation, both in the US and in other key economies. US Fed Chair Powell recently noted that despite some benign monthly inflation readings, he expected that tariff-led inflation impacts may begin to appear in the data starting in June or July. Consequently, the US CPI, PPI, and Import Price Index reports for June, due out this week, will be crucial for beginning to identify tariff impacts and understanding changes in the inflation outlook.
There will also be a range of US data out this week, providing further insight into spending and housing activity at the end of Q2, providing an important update on the growth backdrop.
Tariff headline risk is likely to remain elevated. Also, US earnings results for Q2 will pick up this week.
Key factors & events to watch this week;
US CPI, PPI, and Import/Export price inflation data for June
- Headline CPI is expected to increase by +0.3% in Jun, up from +0.1% in May. The annual rate is expected to increase by +2.7% in Jun, up from +2.4% in May.
- Core CPI is also expected to increase by +0.3% in Jun, up from +0.1% in May. This could result in the annual rate increasing to +3.1% in Jun, up from +2.8% in May.
- Headline PPI is expected to increase by +0.3% in Jun, up from +0.1% in May.
- Core PPI is expected to increase by +0.2% in Jun, up from +0.1% in May.
- US import prices are expected to increase by +0.2% in Jun, up from 0% in May.
Key US spending and activity data for June
- US retail sales for Jun are expected to increase by +0.2% in Jun after falling by -0.9% in May. Slowing consumer spending has evolved as a key feature of the US growth backdrop recently, with a smaller contribution from consumer spending contributing to moderating growth so far in the Q2 GDP tracking.
- US industrial production is expected to increase by +0.1% in Jun, after falling by -0.2% in May.
- US housing data is expected to reflect ongoing subdued conditions in the housing market. New permits are expected to be little changed at 1.39m (annualized) in Jun versus 1.394m in May. Housing starts are expected to firm slightly to 1.29m (annualized) in Jun from 1.256m in May.
- US initial jobless claims have been edging lower recently, but are expected to increase by 234k last week, after slowing to 227k in the prior week. The trend of continuing claims will be important, as they remain elevated at 1.965m.
US Federal Reserve
- The latest Fed Beige Book will be released this week, providing a range of insights and anecdotes on business and household activity.
- There will be a range of Fed speeches this week. A notable speech will be Fed Governor Waller speaking on the Economic Outlook on Thursday. Governor Waller has been a proponent of restarting rate cuts in July, so this speech will be important as it will likely incorporate his assessment of the latest inflation data for Jun into his outlook.
Global inflation reports
- Canada headline CPI for Jun is expected to increase by +0.2% over the month, after increasing by +0.6% in May. The annual rate remained at +1.7% in May, with downward pressure from energy prices. The BoC preferred core measures of trimmed mean and median inflation are both expected to be unchanged at +3% over the year.
- UK inflation is expected to be little changed. Headline inflation is expected to remain at +3.4% in Jun versus +3.4% in May. Core CPI is expected to be unchanged at 3.5% over the year in Jun.
- The Euro area final CPI report for Jun is expected to confirm headline inflation at +2% and core inflation at +2.3%.
- The BoJ preferred measure of inflation is expected to ease to +3.3% over the year in Jun, from +3.7% in May.
China and Japan’s trade data for Jun will be interesting for tracking any tariff-related impacts.
Finally, the Aussie labour market report for Jun is expected to show a rebound in employment growth this month. The unemployment rate is expected to be unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $559bn in ST Bills, Notes, and Bonds raising approx. $63bn in new money.
QT this week: Approx $24bn of ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $2.3bn in Notes, Bonds, and TIPS will mature on the Fed balance sheet and be redeemed.
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 7, 2025
Key events this week: US tariffs, FOMC Minutes, RBA & RBNZ Meetings
Recap from last week: Jobs Report Solidifies Fed’s Patient Stance as Tariff Deadline Looms
As the next critical deadline for reciprocal tariffs looms this week, the Federal Reserve remains firmly in a ‘wait-and-see’ mode regarding policy adjustments. This cautious stance was likely reinforced by the still solid June labor market report. However, the FOMC will continue to monitor the softening U.S. growth backdrop as it awaits the finalization of tariff rates and the impact of these tariffs to appear in the data. While global activity indicators suggest some improved momentum through the end of Q2, this positive trend is set against a backdrop of considerable uncertainty, especially as focus shifts back to the potential for tariff headline risk this week.
At the ECB Forum on Central Banking last week, Fed Chair Powell reinforced that the Fed is waiting to see the effects of tariffs on inflation. Decisions will continue to be made meeting-by-meeting, and while Chair Powell did not rule out a July rate cut, he emphasized that “it will depend on how the data evolve” (source: Bloomberg). With several Fed officials supporting an earlier restart to rate cuts, the June US labor market data was seen as one potential catalyst to bring forward a rate cut to July, especially given the concern over the recent increase in continuing claims.
Overall, however, last week’s labor market data for June makes it less likely that the Fed would restart rate cuts as early as July. Broadly, the labor market continues to reflect this ‘slow hiring, but slow firing’ dynamic as firms pause key decisions, not just on hiring, but also on capex, amid uncertainty remaining over the ‘final’ view of tariffs and the effects on demand.
In June, the headline growth in non-farm payrolls was stronger than expected in Jun at +147k (expecting +120k) versus +144k in May. There were some small positive revisions to the prior months. Across different timeframes, payroll growth has slowed but seems to have stabilized at a low level more recently. The sector split this month suggested that private sector payroll growth had slowed, while government payroll growth rebounded after several months with little growth.
The household survey reflected a mixed result, with conditions in the broader 16yrs+ group improving slightly in June after weakness in May. Employment returned to growth but did not retrace the sharp fall in employment in May. Participation declined, and this contributed to the fall in the unemployment rate from 4.2% to 4.1%. The flows to and from unemployment indicated a more positive backdrop this month. Conditions in the core working age group, 25-54 years, improved to a greater degree, with stronger employment growth and an increase in participation. The unemployment rate fell notably from 3.6% in May to 3.3% in Jun, to be back on par with the unemployment rate recorded a year ago.
Less positive was weakness in aggregate hours worked, which fell by -0.2% in Jun alongside the slight fall in the average workweek. Average hourly earnings growth also slowed to +0.2% in Jun and to +3.7% over the year. The combination of modest payroll growth, slightly declining hours, and slower average earnings growth suggests that labor income growth may be subdued.
Amid sustained, albeit slower, labor market momentum and continued elevated uncertainty surrounding the tariff outlook, the broader U.S. growth backdrop continues to moderate. The latest Atlanta Fed GDP nowcast for US Q2 GDP growth shifted lower again last week from +2.9% at the start of the week to +2.6%. This was led primarily by a smaller and slowing contribution from personal spending and non-residential investment spending. Business surveys showed conditions in manufacturing mostly stabilized, while services activity recorded a modest expansion. Surveys reported pricing pressure persisted in Jun and optimism in the outlook remained subdued. Auto sales in Jun continued to fall, slowing to the slowest pace of the YTD – likely unwinding the stronger sales to front-run tariffs in March and April. This will feed into the broader retail sales result for June (to be released next week).
The broader global growth backdrop remained positive at the end of Q2, with activity continuing to expand. The S&P Global output PMI for Jun showed that global manufacturing and services output both expanded at a more moderate pace, supported by an expansion in new orders and employment. Despite some positive momentum to end the quarter, the survey continues to warn that activity front-loaded into H1 (to front-run tariffs), could begin to unwind in H2, “as drags from US tariffs and related policy uncertainties begin to bite” (source: S&P Global Composite PMI Jun).
Outlook for the week ahead: US tariffs, FOMC minutes, RBA & RBNZ meetings
It will be a relatively quiet data week.
The focus shifts to the July 9 deadline for reciprocal tariff rates this week. By this date, countries are expected to have either finalized a deal framework or face tariff rates set by President Trump. The effective date of these tariffs on August 1 may allow for some further negotiation. Key deals/frameworks with the EU and Japan are yet to be announced and will be closely watched this week.
More broadly, the specific tariff rates announced will be important for the outlook. Last week’s trade deal with Vietnam, for instance, saw their reciprocal tariff rate reduced from 46% to 20% – a notable cut from the initial announcement, but 20% is still a relatively high rate. The three-month reprieve to negotiate lower reciprocal tariffs helped to restore some calm after the initial Liberation Day announcements. So the risk this week is that while some tariffs may be lowered from their initial proposal, even those reduced rates could remain elevated. This, combined with the risk of upside surprises could dent a fragile calm and negatively impact sentiment surrounding the inflation and growth outlook.
Key factors & events to watch this week;
US reciprocal tariff announcements
US Federal Reserve
- FOMC minutes of the 18 June meeting will be released this week.
- Fed speeches: Fed Governor Waller will speak on Thursday on the Balance Sheet. Governor Waller has been a proponent of restarting rate cuts earlier, so he may make some comments relating to the labor market and rates.
- US Consumer Credit change for May; growth in US consumer credit is expected to slow to +$10bn in May from +$17.9bn in April.
RBA meeting
- The RBA is expected to cut rates by 25bps this week as inflation continues to move towards the mid-point of the target range.
- The Board reduced the cash rate by 25bps at the last meeting, citing further evidence of easing inflation, as well as adverse global trade developments shifting the balance of risks to the downside for Aus activity and inflation.
RBNZ meeting
- The RBNZ is expected to stay on hold at this meeting. At its meeting in May, the RBNZ cut rates by 25bps and removed the more explicit easing bias, with the RBNZ Governor noting that the official cash rate was now likely in the ‘neutral zone’.
This week, the US Treasury will auction and/or settle approx. $480bn in ST Bills, raising approx. $16bn 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 on 15 Jul.
Approx $15bn 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
