by Kim | Jun 16, 2025
Key events this week; Central Bank Meetings – FOMC, BoJ, SNB, BoE, and US Retail Sales
Recap from last week: Benign US Inflation for May
Last week offered a mixed view of the global economic outlook. Initial optimism stemmed from benign US inflation reports, which showed little impact from tariffs, coupled with favorable progress in US-China trade negotiations. However, this positive sentiment was overshadowed by the week’s end as rising instability in the Middle East began to emerge, casting a deepening shadow over the geopolitical landscape.
The US CPI & PPI reports were much anticipated this month to answer whether tariff effects were beginning to ripple through the data. Both the US CPI and PPI reports came in lower than expected, reducing expectations for the Fed-preferred PCE deflator in May. While some of the details in the CPI report may have reflected small pockets of tariff-led inflation, the bigger picture annual headline and core inflation rates remain little changed as we cycled over a low inflation month from a year ago. US headline CPI inflation increased by +0.1% over the month, against an expectation of +0.2%, while the annual rate edged higher to +2.4%. Core CPI was also lower than expected over the month at +0.1% (versus an expectation of +0.3%); however, it remained unchanged over the year at +2.8%. The trimmed mean measure of underlying inflation is showing more of a sideways trajectory. Importantly, the broad disinflation trends across services and shelter remain intact, while core goods inflation continued to edge higher from a low level. The PPI report also came in lower than expected. Core PPI came in at +0.1% over the month (versus an expected increase of +0.3%) while the annual rate stayed unchanged at +3%. Together, the CPI & PPI indicate that core PCE will continue to be more benign in May at around +0.14% for the month (source: Cleveland Fed PCE Nowcast).
It’s still highly uncertain the degree to which tariffs will be passed through to US consumer prices in the coming months. While progress was made on US-China talks last week, President Trump continued to threaten a unilateral approach to the ‘reciprocal’ tariffs. However, given the darkening backdrop in the Middle East, the reciprocal tariff deadline (9 Jul) could get pushed out further.
Finally, we continue to watch the trend of the US initial claims data. There was a more noteworthy jump in the NSA claims this week while the SA claims remained elevated. For the third week in a row, continuing claims have been above 1.9 million claimants.
Outlook for the week ahead; Central Bank Decisions – FOMC, BoJ, SNB, BoE, and US Retail Sales
The focus this week will be on a range of key Central Bank meetings, including the FOMC, US consumption and activity data, and the geopolitical backdrop.
The US Juneteenth Holiday is on the 19 Jun this week.
Key factors & events to watch this week;
Central bank decisions;
- The FOMC is expected to keep policy settings unchanged this week. At the last meeting, the FOMC remained in wait-and-see mode due to the high degree of uncertainty over the “final” version of tariffs, and how that will play out in terms of inflation, the labor market, and growth. There are still distortions in the data making that assessment difficult. The latest Fed Summary of Economic Projections will be released, and it will be important to see how Fed projections of inflation, growth, unemployment, and the path of the FFR have changed. We’ll also be looking for any changes in the characterization of the current benign inflation and the signs of cooling labor market conditions.
- The BoJ is expected to keep policy settings unchanged. At its last meeting, the BoJ remained on hold, citing risks and uncertainty regarding the near-term impact of trade tariffs on activity and prices. The BoJ retained its normalization bias IF broader conditions in activity and prices improved as per forecasts. The Japanese National CPI for May is due later in the week and is expected to remain firm.
- The BoE is expected to keep policy settings unchanged after reducing the Bank Rate by 25bps at the prior meeting. The decision to cut at the last meeting was based on disinflation progress. While the Apr UK CPI was firmer (some one-offs) the May CPI due this week is expected to ease again. The latest labour market data continues to reflect some easing in conditions.
- The SNB is expected to cut rates by 25bps – back to zero.
US consumption and activity data will also be in focus this week – providing another solid update to the latest Atlanta Fed GDPNowcast for Q2.
- US nominal retail sales are expected to fall by -0.6% in May – led by a fall in auto purchases as consumers ‘pulled forward’ purchases due to tariffs. Excluding autos, nominal retail sales are expected to increase by +0.1% in May, from +0.1% in Apr.
- US building permits and housing starts are expected to be little changed in May. Building permits are expected to increase to 1.43m (annualized rate) from 1.422m in Apr. Housing starts are expected to be unchanged at 1.36m (annualized rate) in May.
- US industrial production is expected to remain unchanged at 0% in May (versus 0% in Apr).
- The first regional manufacturing surveys for Jun will also be released this week.
Global inflation reports will be important this week in the context of central bank decisions.
- Japanese National Core CPI – ex fresh food (BoJ preferred measure) is expected to accelerate slightly again, from +3.5% in Apr to +3.6% in May.
- The UK CPI for May is expected to ease after a more notable increase in Apr. Headline CPI in May is expected to increase by +0.2% over the month down from +1.2% over the month in Apr. Over the year, core CPI is expected to ease from +3.8% in Apr to +3.5% in May.
- The Euro area CPI for May is expected to confirm annual headline inflation at +1.9% and core inflation at +2.3%
Finally, the Aus labour market report for May is expected to show some easing in net employment growth from 89k in Apr to 20k in May. The unemployment rate is expected to be unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $379bn in ST Bills with a paydown of approx. $61bn. The US Treasury will also auction the 5-year TIPS and 20-year Bond this week.
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 | Jun 9, 2025
Key events this week; US CPI & PPI May
Recap from last week: Policy Impacts
We are at an early point in the policy cycle where significant new policy changes are beginning to be reflected in US economic performance. Our focus remains on tracking shifts in the US economy’s progress, mindful of the potential for higher inflation, slower growth, and distortions stemming primarily from evolving policy. This past week provided two important updates. The first was the May US labor market update, crucial for understanding the outlook for household spending. The second was an update on business activity and sentiment, examining how private sector firms are faring amid ongoing uncertainty and disruptions surrounding the new tariff regime.
US labor market data for May was mixed. Across payrolls and the household survey, there was not a sharp deterioration, but certainly some cooling in conditions. Other labor market reports indicated warning signs still on the horizon.
US non-farm payroll growth came in close to expectations at +139k in May, with a notable downward revision of -95k for the prior two months. The 12-month average slowed to +144k – the slowest of this cycle. While payroll growth slowed, the details this month still seem to mostly reflect a lack of hiring, rather than active retrenchment or layoffs.
The industry view of payroll growth suggests that policy-led initiatives may be having an impact. This is primarily evident in the split between govt and private payrolls. The growth in govt payrolls has slowed to an average of zero since Feb 2025 (DOGE cuts) – down from the average of 38k/month during 2024. This has affected the overall growth in non-farm payrolls since Feb. Importantly, total private payroll growth remained at +140k in May – just above the 2024 average growth of +130k. Annual growth in private payrolls has remained fairly steady around +1.1% since Aug 2024, but this is still the lowest of the current cycle.
Within the private sector, it’s more unclear the degree to which policy-led changes are beginning to impact payroll growth. In most cases, tariffs are likely to exacerbate existing pockets of weakness – especially in manufacturing and construction. Importantly, private payrolls are still growing on a year ago basis across most industries, with annual declines recorded in only three industries – manufacturing, professional and business services, and information.
In May, manufacturing (-8k) and professional & business services (-18k) recorded the only substantial falls in payrolls for the month (of >1k). The weakness in manufacturing payrolls has been in place for almost two years – with payrolls declining on an annual basis since Oct 23 – led by durable goods industries – indicating other factors at play. However, tariff disruptions may exacerbate this trend in the short term.
Two other key industries have recorded slowing payroll growth. Construction payrolls have slowed more notably since Oct 2024 and will likely be exacerbated by tariffs, but also impacted by interest rates. Trade and transportation payroll growth has slowed over the last 3 months – possibly more aligned with the new tariff regime.
Payroll growth in only three industries (narrow breadth) more than offset these falls this month; private health & education, leisure & hospitality (especially in the last 3 months), and the recovery in financials – all contributing a combined +148k payroll increase in May, which was most of the increase in private payrolls.
The household survey showed a notable fall in the number of persons employed in May – almost matched by a fall in the size of the labor force, as persons left the labor force. This still resulted in a small increase in the unemployment rate from 4.18% to 4.24%. The flows to unemployment were more concerning with a larger flow from “employed” to “unemployed” (equal high for this part of the cycle), plus a further increase in persons remaining in unemployment from the prior month. The growth in hours worked remained steady over the month.
Other labor market reports suggest that further labor market weakness may still be on the horizon. The JOLTS report for Apr (lags by a month) did indicate some emerging weakness in layoffs, but hiring still increased. Initial jobless claims remained elevated – and continuing claims remained unchanged at 1.9m suggesting that weakness in hiring is persisting. The Challenger Job Cut Announcements remained elevated in May and there was a notable shift in the leading reason for job cuts; from DOGE actions to ‘market/economic conditions’ and ‘closing’. The Fed Beige Book highlighted “widespread” comments of delayed hiring plans due to uncertainty, with all districts noting lower labor demand and declining hours and over-time. Reports of layoffs were still not pervasive.
The important point for the labor market outlook right now is how firms are faring amidst policy changes, disruptions, and still elevated uncertainty. The latest surveys still reflect the current tariff environment contributing to a more cautious and subdued economic backdrop. Surveys from manufacturing and services firms this month showed a continued slowing in demand, though no severe contraction, as firms grapple with the challenges of navigating uncertainty, rising prices, and supply disruptions. US-based surveys for May showed a consistent theme across both manufacturing and services sectors – and that was the impact of tariffs on prices. From the S&P US Services PMI;
“Alongside sluggish economic growth, the survey is also signaling intensifying inflationary pressures. Rising costs in the service sector were again blamed widely on tariffs, which were in turn passed on to customers to result in the steepest rise in average prices charged since August 2022.” Source: S&P US Services PMI – May
The latest Fed Beige Book reflected a similar sentiment. There were more widespread reports of firms expecting prices to increase at a faster pace going forward and “more widespread reports of declining economic activity” at the end of May. All Districts reported elevated levels of economic and policy uncertainty, leading to a cautious approach to business and household decisions.
Finally, retail sales of motor vehicles for May showed a further unwind of front-loaded demand from Mar and Apr. Motor vehicle sales slowed again in May to 16.1m annualized – with the pullback only slowing to the 2024 average at this stage. But this will still drag on retail sales and spending reports in the short term. The current Atlanta Fed GDP Nowcast shows US growth for Q2 remains elevated at +3.8% – but due mostly to the favorable unwind of the growth in imports in Mar. The contribution from personal spending has continued to edge lower.
Central bank decisions last week also continued to reflect uncertainty over the impacts of tariff policy. The ECB cut rates as expected with inflation now judged to be settling around its 2% medium-term target. The decision reinforced the high degree of uncertainty surrounding the economic outlook due to trade and tariff policies, which is expected to lead to weaker growth for the remainder of the year. The BoC remained on hold, noting a softer, but not sharply weaker economy. The decision noted a “clear consensus to hold policy unchanged as we gain more information”.
Outlook for the week ahead; US CPI & PPI for May
The economic effects of tariffs are likely to be interconnected, influencing firms’ profitability through price pass-through decisions, inflation, consumer spending, and the labor market outlook. The scale of these effects is highly uncertain. Following last week’s insights into the US labor market and firm activity and sentiment, this week’s attention turns to US inflation data. With inflation reports remaining favorable over the past few months, the CPI & PPI reports for May are set to track any tariff-related effects.
It’s the blackout period ahead of the FOMC meeting next week, so there will be no Fed speeches this week.
Key factors & events to watch this week;
US CPI is expected to firm slightly in May;
- Headline CPI is expected to increase by +0.2% over the month in May, the same as in Apr.
- Headline inflation is expected to increase to +2.5% in May, up from +2.3% in Apr.
- Core CPI is expected to increase to +0.3% in May, up from +0.2% in Apr. Core inflation is expected to increase to +2.9% over the year in May, up from +2.8% in Apr.
US PPI is also expected to firm and will be important for the PCE view of inflation for the FOMC next week.
- Headline PPI is expected to increase by +0.2% in May after falling -0.5% in Apr. Headline PPI is expected to increase by +2.6% over the year in May, up from +2.4% in Apr.
- Core PPI is expected to increase by +0.3% in May, up from a -0.4% fall in Apr. Core PPI is expected to increase by +3% over the year in May, from +3.1% in Apr.
Chinese trade data for May will also provide further insight into tariff impacts on activity.
- Export growth over the year was expected to slow from +8.1% in Apr to +5% in May (actual was lower than expected at +4.8% – so Chinese export growth slowed notably in May).
- Imports were expected to fall slightly by -0.9% in May, from -0.2% in Apr. Actual imports fell by -3.4% in May – more than expected.
This week, the US Treasury will auction and/or settle approx. $456bn in ST Bills, Notes, and Bonds, raising approx. $14bn in new money.
QT this week: Approx $10.9bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $0.4bn in Notes and Bonds 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 | Jun 2, 2025
Key events this week; US Non-farm Payrolls, ISM & S&P PMI surveys, Fed Speeches, ECB & BoC Meetings
Recap from last week: US Growth Amid Tariff Distortions
Following our focus in recent weeks, we continue to examine an economic landscape heavily influenced by the evolving trade policy. The broader theme from last week and for this coming week is the health of the US economy – and the degree to which we are starting to see any broadening out of tariff effects. The latest FOMC minutes also offered insights into the Fed’s perspective on inflation and growth risks amid the tariff agenda. New data last week provided a further snapshot of US domestic demand, business activity, and inflation.
The tariff agenda remains in a state of flux. Some of President Trump’s tariffs were deemed illegal under ’emergency powers’, though a stay was granted, keeping them in place while the appeal is considered. This legal uncertainty implies a further protracted path of negotiations with trade partners. Compounding this, news of higher tariffs on steel and iron imports also emerged. These developments ensure that tariffs continue to be a significant source of uncertainty and unpredictability for the economic outlook.
Tariff-driven inflation and uncertainty were two of the key themes from the latest FOMC Minutes. However, the Minutes of the 6-7 May meeting were before the important 12 May announcement of the US-China reprieve agreeing to lower tariffs for 90 days. Based on that view of the tariff outlook, the Minutes highlighted concerns that tariffs could complicate the disinflationary process by leading to persistent inflation, market disruptions, and negative effects of elevated uncertainty on broader sentiment and the economic outlook. The FOMC acknowledged that the tariff announcements had increased concerns over the near-term outlooks for both inflation and growth. Committee participants agreed that the risks of higher inflation and higher unemployment had risen. With policy settings still seen as “moderately restrictive,” the Committee believed that it was well-positioned to wait for more clarity on the outlook for inflation and economic activity. Speeches since then have maintained this wait-and-see approach as the tariff and policy agenda continues to evolve.
While policymakers voiced concerns over the potential for higher tariff-led inflation, the latest PCE inflation data for Apr showed little impact from tariffs so far. To date, it’s been survey measures reflecting a concerning trend of more widespread increases in prices – but these surveys don’t show the magnitude of the price increases, nor the degree of pass-through. It’s still unclear how big the tariff impact will be on inflation. In Apr, both headline and core PCE inflation measures came in lower than expected. Headline PCE inflation slowed to +2.15% and core PCE inflation slowed to +2.5% over the year. Core services inflation was notably slower at +0.1% with a drag from portfolio management fees which is likely to rebound next month. However, a potential broadening of tariff effects into core goods was hinted at, with the monthly rate up to +0.5% led by furnishings and durable household equipment and recreational goods & vehicles. The trimmed mean alternative view of underlying inflation was unchanged at +2.5% over the year and the monthly rate remained at +0.2%, unchanged for the last six months. This reflects a steady pace of monthly underlying inflation, remaining on more of a sideways trajectory. This likely underscores the Fed’s concern about the starting point for inflation under the new tariff regime: where inflation is still elevated relative to the 2% target and has been above that target for five years now.
A key theme from the rest of the data last week centered on the health of the US domestic economy and specifically the US consumer. Beyond prices, the data offered insights into how the core US economy, particularly the consumer, is faring under these highly uncertain conditions and whether tariff effects are beginning to manifest more broadly in domestic demand. The data reflected a slowdown in consumer spending growth, but that spending remained resilient and supported by solid labor market and income conditions in Apr. The increase in saving (income surplus) seems aligned with the more dour sentiment among households through Q1.
The second estimate of US Q1 GDP was little changed with aggregate demand contracting slightly less by -0.08% in Q1. Underneath that headline, the key story was the downward revision to Q1 personal consumption growth, from +0.4% to +0.3%. Context is important and this slower growth follows considerably higher growth over the past three quarters, which averaged +0.86%, and occurred despite the significant weakening of consumer sentiment in Q1. Removing the distortions from net trade and inventories the Real Private Domestic Final Purchases (PDFP) measure of private domestic demand did slow to +0.5% in Q1 but remained at a still solid +2.8% over the year. While growth in personal consumption slowed, growth in private fixed investment accelerated, notably in non-residential equipment.
The Apr personal spending data pointed to resilient consumer spending. While real spending growth in Apr slowed to +0.1%, this was preceded by a substantial +0.7% increase in Mar. In other words, the higher spending levels from Mar were sustained into Apr – though the mix shifted, and this was despite the Mar spending likely reflecting some pull-forward of auto sales ahead of tariffs. The risk is that any pull-forward of demand due to tariffs may still reverse later as demand normalizes.
Importantly, spending was supported by another solid gain in personal income in Apr, rising +0.8% from +0.7% in Mar. While this was mostly due to a change in transfer payments, employee compensation growth slowed only slightly in Apr to +0.5% (from +0.55% in Mar), reflecting solid labor market conditions. Similarly, personal income excluding transfer payments increased by +0.4% in Apr – also equalling the average monthly increase of 2024 – and only slightly slower than the larger increase in Mar. The higher income growth and slower spending growth resulted in another increase in personal savings in Apr. This seems fairly consistent given the substantial weakening in consumer sentiment through Q1. Sentiment has stopped falling as tariff rhetoric has softened, but any rebound in the outlook sentiment has been modest so far.
The preliminary Apr goods trade balance was a key release last week, highlighting a sharp reversal in the drag from goods trade on growth. The goods trade deficit narrowed notably, almost halving after imports fell and export growth accelerated in nominal terms. This shift in trade dynamics, directly influenced by the evolving tariff landscape, had a notable effect on the latest iteration of the Atlanta Fed GDP nowcast for Q2 GDP growth. After all the data last week, the US growth run rate now sits at a more robust +3.8% in Q2. This figure was primarily driven higher by a substantially larger contribution from the narrowing goods trade deficit, more than offsetting a softening in the contribution from personal consumption expenditures and private domestic investment.
Outlook for the week ahead; US Non-farm Payrolls, ISM & S&P PMI Surveys, Fed Speeches, ECB & BoC Meetings
Our focus remains on tracking shifts in the US economy’s progress, mindful of the potential for higher inflation, slower growth, and distortions stemming from the evolving tariff policy. Building on the insights from last week, the spotlight turns to the US labor market data for May – crucial for gauging the consumer’s ongoing resilience. The ISM and S&P PMIs for May will further provide early insights into how private sector firms are responding to the shifts in the tariff outlook.
Key factors & events to watch this week;
US labor market – May
- US non-farm payroll growth is expected to slow to +130k in May, from +177k in Apr. While revisions will be important, so will the composition of payroll growth – to assess the degree to which tariff effects are potentially starting to broaden out among key industries.
- Despite slower payroll growth, the unemployment rate is expected to remain unchanged at 4.2% in May.
- Average weekly hours are expected to be unchanged at 34.3.
- The JOLTS survey for Apr is expected to show job openings remaining little changed at 7.1m.
- Initial claims remain on our radar with both initial jobless claims remaining elevated and continuing claims yet again reaching the 1.9m level.
- The Challenger Job Cut Announcement survey for May will provide some further insight into future planned layoffs by firms. Job cut announcements have been elevated through Q1 – suggesting a rise in layoffs on the horizon.
US ISM PMIs – May
- The US ISM surveys for manufacturing and services will provide an important gauge reflecting how firms are responding to shifts in the tariff landscape – through orders, inventories, the labor market, and prices.
US Fed speeches
- There will be a range of Fed speeches this week – with several speeches focusing on the Economic Outlook – including Governors Waller, Cook, and Kugler. This is usually an important topic, providing some insights into how Fed officials are seeing and characterizing the latest inflation, growth, and spending data.
- Fed Chair Powell will give opening remarks on Monday.
- The latest Fed Beige Book will be released, providing a summary of important anecdotes from Fed regional contacts on the economy.
Central Bank Meetings & Minutes
- The ECB will meet this week and is expected to cut its benchmark Deposit Facility Rate by 25bps.
- The BoC is also expected to cut its benchmark rate by 25bps.
- The minutes of the latest RBA meeting will be released, where the RBA cut rates for the second time in this cycle. We’ll be looking for details of the discussion regarding the size of the rate cut.
Euro area CPI – prelim for May is expected to show inflation moderating. Headline CPI is expected to slow to +2% in May from +2.2% in Apr. Core CPI is expected to slow to +2.4% in May from +2.7% in Apr.
Canada’s labour market is expected to deteriorate further in May, with the net employment change to decline by 15k after only a modest +7.4 increase in Apr. The unemployment rate is expected to edge higher to 7% from 6.9% in Apr.
Finally, the broader suite of global S&P PMIs for May will be released this week. The global composite output index slowed notably last month, as both services and manufacturing output growth momentum slowed.
This week, the US Treasury will auction and/or settle approx. $404bn in ST Bills, with a net paydown of $38bn.
QT this week: Approx $5.2bn 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 | May 26, 2025
Key events this week; US PCE inflation & prelim goods trade balance, FOMC minutes, & RBNZ meeting
Recap from last week: Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We pick up on a similar theme to last week as we continue to navigate the economic landscape amid the crosscurrents of evolving trade policy. The economic landscape remains subject to the immediate and unpredictable element of trade policy, a reality sharply underscored by renewed tariff threats late last week – which have, for now, been postponed. This week, we examine how preliminary PMI data for May reflects business responses to this highly uncertain environment, analyze the mixed inflation picture, and assess how global central banks are attempting to balance their mandates against the unpredictable tariff wildcard.
We again lean heavily on the leading S&P prelim PMIs for May to provide an up-to-date picture of how businesses and countries are responding to this uncertain backdrop. Broadly, the prelim PMIs for May did show that the tariff reprieves have indeed provided a boost to business confidence and sentiment in future output growth. However, in the US especially, underlying concern about future tariff issues, supply chain disruptions, and rising prices persisted.
The improvement in US manufacturing activity hints at some contribution from tariff front-running – with the headline PMI higher due to increasing lead times and a notable increase in inventories. Output growth increased from a stalled pace driven by domestic demand while new export orders contracted. The increase in new orders was driven by a combination of tariff front-running and reports of switching from new domestic customers. This helped to offset the drag from another fall in employment. In the US services PMI, output activity rebounded from the fall in Apr, but there was an especially sharp fall in services new export orders. Across both sectors, the PMIs indicate that pricing pressure continued to intensify in May – and extended to manufacturing selling prices this month. The fall in both US services and manufacturing payrolls, plus inventory stocking among manufacturers, reflects the still subdued optimism and caution in the outlook.
Weaker activity and sentiment due to trade uncertainty are still evident in Japan and to a lesser extent in Australia. The Eurozone’s weakness was driven more by weaker services, but the data acknowledges the potential for tariff-related “front-running” to have helped stabilize manufacturing output.
Global CPI reports provided a mixed view of the inflation picture – but had a similar theme; stickier underlying inflation.
The Euro Area headline inflation was stable at +2.2% in Apr with falling energy prices offsetting higher food price inflation. Core inflation jumped to +2.7% (from +2.4% in Mar), as services inflation accelerated back up to +4% in Apr.
The UK CPI report for Apr came in higher than expected – with expectations already higher due to annual increases in the energy/utilities price cap, a rise in the vehicle excise duty, Easter calendar effects, and the introduction of the new payroll tax. While some contributions are considered “one-off,” the immediate impact is higher inflation. Headline UK CPI increased by +3.5% over the year in Apr, up from +2.6% in Mar. Core CPI jumped to +3.8% in Apr from +3.4% in Mar.
Japan’s measures of inflation accelerated in Apr – across both annual and monthly measures. The BoJ preferred core CPI ex fresh food accelerated further in Apr to +3.5% from +3.2% in Mar – led by food excluding fresh food, housing, fuel/light/water, and culture & recreation, including a +3.1% increase in energy prices over the month. The fall in Education prices (reduction in public high school fees) offset some of these increases. While core inflation measures are still above the recently revised BoJ forecasts, the BoJ expects underlying inflation readings to moderate in the second half – in line with notably reduced growth forecasts. At the last meeting, the BoJ stayed on hold until the effect of tariffs and trade negotiations on prices and activity became clearer.
Canada’s headline CPI slowed to +1.7% in Apr due to falling energy prices (including the removal of the consumer carbon price). However, underlying inflation accelerated; both the trimmed mean and median measures increased to their highest levels in over six months, with the two measures averaging +3.1% in Apr, up from +2.8% in Mar.
After seeing disinflationary progress from higher rates, underlying inflation pressures have remained sticky in April – and it’s unclear how persistent this will be. Confronted with a highly uncertain shock from tariffs, central banks are striving to balance their mandates of price stability and full employment. Last week’s decisions (RBA, ECB minutes) reflected a consistent approach to that challenge: either cutting rates as insurance against downside growth risks, or waiting (as with the Fed) to observe tariff (and broader policy) developments, yet still favoring cuts.
The RBA cut the cash rate by 25bps as expected last week, citing easing inflation supported by low unemployment, and a pre-emptive element against a highly “unpredictable” tariff and trade backdrop. Growth and inflation forecasts were revised lower, while the unemployment rate was forecast to edge higher in the medium term. Governor Bullock noted that the Board had determined that “global trade developments will overall be disinflationary for Australia”, an important context for the RBA view on the impact of tariffs. The current monetary policy stance was deemed as “somewhat less restrictive,” which suggests that there is scope for further cuts, amid the highly uncertain environment.
The ECB minutes confirmed the details of the recent decision to cut rates, citing confidence in the disinflationary process, effective transmission of policy, and “insurance against negative economic outcomes stemming from escalating US tariff proposals.” The outlook remained cautious given that retaliatory tariffs and fiscal spending could push prices higher, and the overall unpredictability of global trade policy is also weighing on growth. The ECB reiterated its data-dependent approach, maintaining full optionality, and stressing the need for agility to react quickly if necessary.
In an interview last week, Fed Governor Waller noted that rate cuts were still possible if tariff rates settled at the lower end of the range.
Outlook for the week ahead; US PCE inflation & prelim goods trade balance, FOMC minutes, & the RBNZ meeting
As the new trade and tariff regime continues to take hold, data releases this week will offer insights into shifts in US sentiment, economic performance, and inflation dynamics.
Key factors & events to watch this week;
The Fed-preferred PCE inflation for Apr is expected to be little changed – based on the latest Cleveland Fed PCE inflation nowcast for Apr, though there is a range of forecasts;
- Headline PCE inflation is expected to increase by +0.19% over the month in Apr, up from 0% in Mar. Assuming no revisions in the prior month, the annual rate would increase by +2.2%, down from +2.3% in Mar.
- According to the Cleveland Fed nowcast, core PCE inflation is expected to increase by +0.21% over the month in Apr, up from 0% in Mar. Assuming no revisions to Mar, the annual rate would remain at +2.6% over the year in Apr. Other estimates suggest that the increase in core PCE inflation over the month will be lower at +0.1% – and in this case, the annual rate would slow to +2.5% in Apr, from +2.65% in Mar.
US Growth Inputs – there will be various data releases that will feed into a more robust update of the Atlanta Fed US Q2 GDP growth nowcast – currently sitting at +2.4% for Q2
- One of the most awaited data releases will be the prelim goods trade balance for Apr. This has widened notably in Q1, and especially in Feb and Mar, as firms have front-run expected tariff increases. The goods trade balance is expected to narrow to -$141bn from -$163 in Mar.
- Personal spending for Apr is expected to slow to +0.2% over the month from +0.7% in Mar.
- Personal income growth is expected to slow to +0.3% in Apr from +0.5% in Mar.
- Durable goods orders for Apr are expected to fall by -7.9%, reversing the stronger increase in Mar of +7.5%.
- The second prelim estimate of US Q1 GDP is expected to confirm the -0.3% decline in GDP over the quarter.
- The Conference Board and Michigan (final) consumer sentiment surveys for May are expected to show a slight improvement in sentiment though remaining subdued.
Central Banks
- The FOMC minutes of the latest meeting on 7 May will be released. The FOMC kept policy settings unchanged at this meeting and reiterated its wait-and-see mode due to the high degree of uncertainty over the “final” version of tariffs, and how that will play out in terms of inflation, the labor market, and growth.
- There will be numerous speeches this week – see the Fed calendar for details – HERE.
- The RBNZ is expected to cut rates by 25bps at its meeting this week.
This week, the US Treasury will auction and/or settle approx. $679bn in ST Bills, Notes, Bonds, TIPS, and FRNs, raising approx. $134bn in new money.
QT this week: Approx $40bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $1.9bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed and roll-off the balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 19, 2025
Key events this week – S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
Recap from last week – Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We continue to navigate shifts in the economic landscape amid the crosscurrents of evolving trade policy. This past week offered a crucial snapshot of the US economy’s early Q2 growth and inflation performance under the nascent trade and tariff regime. The shifting tariff goalposts have created uncertainty for businesses, consumers, and policymakers. Meanwhile, the impact on and outlook for inflation remain uncertain, but initial hard data for US Q2 growth has largely shown resilience, yet is still challenged by pockets of weakness and downbeat sentiment.
The inflation picture at the start of Q2 continues to be shaped by concerns over above-target inflation, coupled with uncertainty about the impact of tariffs on inflation. Both Fed Vice Chair Jefferson and Governor Kugler’s speeches built on the FOMC’s acknowledgment that risks to both sides of the dual mandate have increased. Both speeches underscored the concern that, given inflation remains above target, tariffs pose an upside risk to inflation. There is still uncertainty over the scope and level of tariffs, the degree to which they will be passed through, and importantly how persistent inflation from tariffs may be. Governor Kugler quoted a Dallas Fed survey that found that 55% of Texas business executives expect to pass through most or all of the costs from higher tariffs to customers. Of those, 64% expect this pass-through to occur within the first three months after the tariffs take effect. That would suggest that tariff-related price increases may be observed soon (Source: Gov Kugler speech).
The impact on prices will hinge on the path and settlement of tariff rates. In the interim, the announcement of a 90-day reprieve from the significantly higher US-China tariffs generated optimism this past week. Tariffs between the US and China will remain at a reduced level during this truce. With the 90-day pause on reciprocal tariffs nearing its midpoint, trade talks have been prioritized among some countries. However, adding to the evolving landscape, US President Trump announced that his administration would begin to set the reciprocal tariff rates for other countries “over the next two to three weeks” (source: Bloomberg).
With the more tangible impact of tariffs on inflation likely still on the horizon, the Apr US CPI offered a slightly cooler reading than expected over the month. The annual headline rate also eased by slightly more than anticipated. Core goods prices continued to make a positive contribution to the change in headline inflation between Apr and Mar, while core services made the largest contribution to the deceleration in annual inflation, along with food and energy categories. Measures of underlying inflation – indicating where inflation might be headed – show a mixed picture. The trimmed mean continues to show progress on disinflation; however, the trend indicates that the underlying pace of disinflation has been slowing. PPI inflation over the month surprised notably to the downside to -0.5% over the month and there was a larger upside revision to the monthly rate in Mar (revised up from -0.4% to 0% in Mar). PPI services were the main contributor to the downside surprise in Apr (portfolio mgt fees & airline fares fell). Together, the CPI and PPI provide a guide for the important PCE inflation result. The Cleveland Fed Inflation Nowcast of PCE inflation over the month in Apr (as of 16 May) shows headline PCE inflation growth of +0.19% and core +0.21% over the month. Core PCE would stay at +2.6% over the year.
The first view of important Q2 growth data showed signs of resilience. The Atlanta Fed GDP Nowcast for US Q2 growth edged higher to +2.4% after data releases. This is still an early reading on growth for Q2 and will continue to evolve over the coming weeks. There was a positive contribution from retail sales and industrial production. US nominal retail sales growth slowed to +0.1% in Apr after a strong, upwardly revised +1.7% in Mar. While this reflects at least sustained spending after the strong Mar result, there is a risk that the pull-forward of demand (notably in autos) may reverse as demand normalizes in the near term, with tariff impacts as a key variable. Industrial production was flat in Apr after falling Mar – as declines in manufacturing and mining output were offset by growth in utilities output. The first US regional manufacturing surveys for May generally showed demand conditions had stabilized, with improvements in future output expectations (not including the response to the US-China tariff reduction reprieve), though input price pressures persisted. There was a small negative contribution to Q2 growth from housing starts, which came in a little lower than expected but increased slightly from the weaker result in Mar. New home builder sentiment fell notably in May.
US consumer sentiment indicators edged lower across most measures in the prelim report for May. However, the survey did capture some early reactions to the news of the 90-day reprieve/reduction on tariffs between the US and China – which seemed to be positive for sentiment. The final reading for May should reflect a broader reaction to the news.
Outlook for the week ahead; S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
As the new trade and tariff regime continues to take hold, data releases will continue to offer an early glimpse into shifts in sentiment, economic performance, and inflation dynamics. While it will generally be a lighter data week, there will be several releases of interest, including the S&P prelim PMIs for May. Other highlights include US existing and new home sales and important inflation data for Japan, the UK, Canada, and the Euro area. The RBA meets and the ECB minutes will be released this week. The tariff backdrop should remain positive with hints of further trade agreement frameworks to be announced in the coming weeks.
Key factors & events to watch this week;
S&P Prelim PMI’s May
The S&P Prelim PMIs for May should provide one of the first reactions to last week’s announcement of the US-China reduced tariff reprieve. This reaction is likely to show up in the future output expectations and sentiment components. The May prelim report should also have a more robust business reaction to the reciprocal tariff pause (back on the 9 Apr). The Apr PMIs reflected a slowdown in growth momentum against a backdrop of the initial tariff and reciprocal tariff announcements, rising prices, and weakening sentiment. Therefore, this week’s PMI data will be crucial in determining if these trends persisted into May and if the various tariff reprieves resulted in a boost to activity and business outlook.
Central Banks
- The RBA meets this week and is expected to cut rates by 25bps for only the second time in this cycle. The last meeting was on 1 Apr, just before the ‘Liberation Day’ tariff announcement amid a heightened sense of uncertainty in the outlook. In considering the path of rates, the Board needed confidence that inflation would continue to move in the right direction. The Q1 CPI helped to confirm the continued progress on disinflation with core CPI easing back to the upper target band, while last week’s labour market survey for Apr recorded strong employment growth and a continuing trend of low unemployment.
- The ECB Minutes of the last meeting will be released this week.
- US Fed speeches; there will be numerous speeches this week, several of which are scheduled Commencement or Baccalaureate speeches (Fed Chair Powell). See the Fed calendar for details – HERE.
Global inflation data – CPI for Apr
- Euro area CPI for Apr (final) is expected to confirm headline inflation at +2.2% over the year and core inflation at +2.7% over the year.
- Canada’s CPI for Apr is expected to slow to +1.6% over the year from +2.3% in Mar. Monthly inflation is expected to increase by +0.5% in Apr, up from +0.3% in Mar.
- UK headline CPI is expected to increase by +3.3% over the year in Apr, up from +2.6% in Mar. Core CPI is also expected to increase by +3.6% in Apr, up from +3.4% in Mar.
- Japan’s National CPI is also expected to increase. The BoJ-preferred core CPI – ex fresh food, is expected to increase by +3.5% in Apr, up from +3.2% in Mar.
US data – housing & regional manufacturing surveys
- US existing home sales are expected to increase to 4.15m (annualized) in Apr, up from 4.02m in Mar.
- New home sales are expected to remain lackluster, slowing to 0.696m (annualized) in Apr, from 0.724m in Mar.
- The Kansas City Fed Manufacturing Index for May will be released this week.
This week, the US Treasury will auction and/or settle approx. $434bn in ST Bills, with a paydown of approx. $12bn. The US Treasury will also auction the 20-year Bond and 10-year TIPS this week – both will settle at the end of the month.
QT this week: Approx $14.1bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
Next Monday is the US Memorial Day Holiday.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 12, 2025
Key events this week – US CPI, PPI, retail sales, output, housing, and US Fed speeches
Recap from last week: Central Bank Decisions Diverge on Tariff Uncertainty
Elevated tariff uncertainty and trade tensions remained a key theme among central bank decisions last week; however, their decisions diverged as each central bank navigated its specific exposure to global trade headwinds and domestic issues.
The FOMC kept rates unchanged as expected, and remained firmly in ‘wait and see’ mode. US Fed Chair Powell cited elevated uncertainty over tariffs, their effects, the broader policy landscape, and therefore the right policy response at this stage of the process.
There’s so much uncertainty about the scale, scope, timing, and persistence of the tariffs. Source: FOMC Press Conference 7 May 2025
The Fed Chair acknowledged the weakening domestic sentiment but emphasized the “still solid” hard data. But with inflation still above the 2% target, the Fed Chair ruled out the opportunity for pre-emptive rate cuts. The still-solid data continues to support the Fed staying on hold as it waits for “economic conditions to evolve”. There was a new statement in the decision though – an important acknowledgment that the Fed sees rising risks to both sides of its dual mandate;
The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen. Source: FOMC Statement 7 May 2025
The BoE cut rates by 25bps – a decision split 5-4, with two members preferring a 50bps cut and two members preferring to keep rates unchanged. The decision to cut reflected ongoing progress on disinflation, enabling the MPC to withdraw, gradually, its policy restraint. The minutes of the decision suggested that there was a pre-emptive element to this rate cut;
Although the current impact of the global trade news should not be overstated, the news was sufficient for those members to judge that a reduction in Bank Rate was warranted. Source: BoE Statement 8 May 2025
The PBoC announced a series of rate cuts and monetary easing measures to support domestic activity, as the Chinese economy bears the brunt of the trade war.
“This isn’t just a boost for liquidity and credit — the focus on tech, consumption, and elderly care signals a broader push to support structural drivers of the economy.” Source: Bloomberg
China’s overall trade data for Apr was surprisingly solid, with export growth remaining firm at +8.1% over the year. While exports from China to the US fell by -21% from a year ago due to higher tariffs (Source: Bloomberg), the report suggested that exports from China to other countries increased to offset that fall. Imports from the US also fell by -14%, while the broader decline in China’s import demand eased to -0.2% over the year. This is the first “hard data” confirming slowing trade between the US and China. The opening of negotiations between the US and China offers a glimmer of hope for a path to a reduction in the currently “unsustainable” level of tariffs on US-China trade. At the time of writing, the US and China agreed to a short reprieve with tariffs lowered for the next ninety days as talks continue. The US is to lower tariffs on China to 30% (from 145%) for 90 days and China is to lower tariffs on the US to 10% (from 125%) for 90 days (source: Bloomberg).
While central bank decisions showed diverging responses to the trade uncertainty, the ‘soft’ indicators continued to paint a picture of an emerging tariff drag. Last week, the global S&P PMIs for April reflected some weakening in global economic momentum. The latest Global S&P PMIs revealed a notable deceleration in global economic momentum in Apr, reaching a 17-month low but remaining in positive territory. Service sector growth eased sharply while manufacturing output growth remained sluggish. This more widespread slowdown in growth was evident in major economies like China, the euro area, and the UK. The deceleration was also pronounced in the US – led by a notable slowdown in the larger services sector. Growth in US services activity slowed to a more modest pace as firms noted that rising trade uncertainty impacted demand in both domestic and export markets. Future output sentiment continued to wane. Rising input prices due to tariffs were noted as the key reason for the increase in output/selling prices in Apr.
One other piece of hard data that continued to soften last week was Canada’s labour market in Apr. Employment growth remained subdued at +7.4k as labour force participation increased – this resulted in the unemployment rate moving back up 6.9% in Apr, from 6.7% in Mar. Employment declined across some of the more tariff-exposed industries; manufacturing -33k and wholesale/retail -27k. Statistics Canada notes though that the proportion of unemployed due to layoffs in Apr (0.7%), was little changed from a year ago (0.6%). Falls in employment were partly offset by an increase in temporary employment due to the federal election.
Outlook for the week ahead; US CPI, PPI, retail sales, production, housing, and US Fed speeches
This week, the focus shifts to important US hard data – retail sales, CPI & PPI, industrial production, and residential construction. These datapoints will provide a critical early read on Q2 growth momentum and potentially signal whether it’s beginning to align with recent softer survey trends. All of this unfolds against the backdrop of trade talk optimism and Fed commentary.
Key factors & events to watch this week;
US CPI and PPI inflation for April is expected to show monthly inflation firming. The detail will be important as to whether this begins to reflect any potential tariff impacts. The CPI & PPI will provide a leading guide for the Fed-preferred PCE inflation measure.
- Headline CPI is expected to be unchanged at +2.4% over the year in Apr, versus +2.4% in Mar. CPI is expected to increase by +0.3% over the month, up from -0.1% in Mar.
- Core CPI is expected to increase by +2.85% in Apr, up from +2.8% in Mar. Core CPI is expected to increase by +0.3% in Apr, also up from +0.1% in Mar.
- Headline PPI is expected to slow to +2.5% in Apr from +2.75% in Mar. Over the month, PPI is expected to increase by +0.2%, up from -0.4% in Mar.
- Core PPI is expected to slow to +3.1% in Apr, from +3.3% in Mar. Monthly core PPI is expected to increase by +0.3% in Apr, up from -0.1% in Mar.
US retail sales for Apr are expected to slow after the much stronger result in Mar.
- US retail sales are expected to increase by +0.1% in Apr, down from +1.5% in Mar.
- Last month, the retail control group increased by +0.4% – this is the measures that will feed into the GDP result.
US manufacturing and output
- US industrial production for Apr is expected to stabilize at +0.1% after falling by -0.3% in Mar. The manufacturing output figure will be important – in Mar, manufacturing output increased by +0.3%, down from +1% in Feb. The PMI indicators of manufacturing output in Apr suggest a more stalled pace of expansion.
- The first US regional manufacturing surveys for May will be released this week – the NY Empire State and Philadelphia Fed surveys. The May survey data will be interesting to gauge any leading shift in sentiment since the pause on reciprocal tariffs in early Apr.
US residential construction
- Building permits are expected to be little changed at around 1.45m (annualized) in Apr, from 1.467m in Mar.
- Housing starts are expected to increase slightly to 1.36m in Apr, from 1.32m in Mar.
Important US Fed speeches this week;
- US Fed Chair Powell will give a speech later in the week on the Framework Review – it’s not clear whether this will include specific commentary on the current outlook.
- US Fed Vice Chair Jefferson and Fed Governor Kugler will both give speeches on the economic outlook. Speeches on the ‘economic outlook’ are usually more instructive for the specific views of FOMC members.
- Fed Governor Waller will also give a speech this week on Central Bank Research – again it’s not clear whether this will include specific commentary on the economic outlook.
Outside of the US, data will focus broadly on GDP growth results for Q1 (QoQ); Euro area (second prelim) +0.4%, the UK +0.6%, and Japan -0.1%.
There will be a range of important Aus data in the lead-up to the RBA meeting next week (20 May).
- The Wage Price Index for Q1 is expected to remain little changed at +0.8% in Q1, after a +0.7% increase in Q4 2024. The annual rate is expected to remain around +3.2%.
- The Aus labour market survey is expected to show continued modest employment growth of +21k in Apr and the unemployment rate to remain unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $632bn in ST Bills, Notes, and Bonds, raising approx. $42bn in new money.
QT this week: Approx $67.8bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $3.1bn of Notes & Bonds will mature on the Fed balance sheet and will be redeemed/roll-off the balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
