by Kim | Oct 20, 2025
The key events shaping the w/c 20 October 2025: US CPI for Sep, global inflation reports for Sep (NZ, the UK, Canada, and Japan), S&P prelim PMIs for Oct
Recap from last week: Fed Easing with Caution
Amid the ongoing US government shutdown and data vacuum, focus remained on key Fed speeches in the lead-up to next week’s FOMC meeting. The message from those speeches was clear: easing with caution. The latest Beige Book provided a broad update on the US backdrop, detailing slower growth, muted labor market conditions, and persistent input price inflation. The release of the US CPI report for Sep this week will provide the Fed with an important update on inflation. Globally, the market will receive Sep inflation updates from NZ, the UK, Japan, and Canada.
Speeches by Fed Chair Powell and Fed Governor Waller last week supported another rate cut at the FOMC meeting next week. The Fed Chair noted that, despite the lack of official data, and based on the data available, the outlook for employment and inflation hasn’t changed much since the last meeting. In other words, the balance of risks still reflects the rising downside risks to the labor market. He noted, though, that economic activity may be on a somewhat firmer trajectory than expected. The first half of Chair Powell’s speech focused on the Fed’s balance sheet. Chair Powell acknowledged that the end of Quantitative Tightening (QT)/balance sheet run-off may be approaching “in coming months”, given the level of total reserves in the system, and emerging signs that “liquidity conditions are gradually tightening”. It was a timely speech on liquidity conditions, given the recent, yet temporary pressures in short-term funding markets, and could signal an earlier end to QT.
In his speech, Governor Waller noted the backdrop of conflicting data: solid growth in activity while the labor market is softening. It’s a situation where “something’s got to give”. Until it’s clear which way the data will break (in favour of stronger growth or a weaker labor market), Governor Waller advocated for a cautious pace of cuts to avoid a policy mistake.
The Fed Beige Book for the six weeks to mid-Oct showed some easing in the pace of economic activity, continued subdued hiring, and stable employment, as prices continued to rise. While the report noted that economic activity had “changed little” from the previous report, fewer regions had reported either no change in activity or increasing activity, and more regions reported a “slight softening” in activity. Consumer spending “inched down,” manufacturing activity was “varied,” and activity in agriculture, energy, and transportation was “generally down”. The report showed differing effects among high and lower/medium income cohorts, with spending on “luxury travel and accommodation” reportedly strong, while other households “continued to seek discounts and promotions in the face of rising prices and elevated economic uncertainty”.
Employment levels were “largely stable”, while demand for labor remained muted. In some cases, hiring was replaced by “layoffs and attrition” due to weaker demand, elevated economic uncertainty, and investment in AI technologies.
Prices increased further due to higher import costs (tariffs) across many districts as well as higher costs of services. Tariffs seemed to have a dual impact of a growth drag on manufacturing and of driving higher input price inflation. There were mixed reports between firms absorbing the higher tariff costs via lower margins and firms passing on the higher costs.
The Beige Book still confirms the challenging and delicate path for the Fed to navigate, the “no risk-free path”. However, the softening in growth and continued muted labor market conditions will still play into the rising downside risks, supporting an easing bias. With the inflation backdrop remaining persistent, this week’s US CPI report for Sep will offer an important view of the path of inflation.
The challenge of conflicting data was not limited to the US. The RBA Minutes showed that the Board had stayed on hold in Sep due to concerns that the decline in inflation had slowed, supported by signs of recovering private sector demand, stable unemployment, and “leading indicators (such as job advertisements and vacancies) that continued to point to healthy labour demand in the near term”.
However, last week’s Aus Sep labour market report showed a sharper increase in the unemployment rate to 4.5%, from 4.3% in Aug. Despite the rebound in employment growth, unemployment increased as participation also increased. This will be a concerning development for the RBA Board, and they will likely need to see whether this higher participation is absorbed/resolved next month. In the meantime, the important Q3 CPI data is due on 29 Oct, providing the RBA with a better understanding of shifts in underlying inflation. The next RBA meeting is on 3-4 Nov.
On the geopolitical front, markets continue to track the negotiations and posturing between the US and China on tariffs, leading up to the meeting between US President Trump and Chinese President Xi. The recent flare-up of tensions has been tempered with a more conciliatory tone for now.
Outlook for the week ahead: US CPI for Sep, global inflation reports for Sep (NZ, the UK, Canada, and Japan), S&P prelim PMIs for Oct
The focus this week shifts to data. Specifically, the updated inflation backdrop for Sept for the US, as well as global CPI reports. The BLS will be releasing the US CPI data at the end of the week, despite the shutdown, as it is an important input to calculate the cost-of-living adjustment for government transfer payments for 2026. The data will also be important for the FOMC meeting next week.
Also out this week will be the prelim S&P PMIs for key developed markets, offering the first view of growth and momentum leading into Q4.
Other important points for the week ahead: tensions on trade and tariff negotiations continuing to simmer between the US and China with ongoing headline risk, progress on resolving the US government shutdown, and this is the blackout period before the next FOMC meeting on the 28-29 Oct – although there are a few speeches scheduled (opening remarks).
Key factors & events to watch this week:
US inflation data – CPI for September.
The inflation data will be limited to the CPI release and is scheduled to be released at the end of the week on 24 Oct.
- Headline CPI is expected to increase by +0.4% over the month in Sep, after increasing by +0.4% in Aug. Over the year, headline CPI is expected to increase by +3.1% in Sep, up from +2.9% in Aug.
- Core CPI is expected to increase by +0.3% over the month in Sep, after increasing by +0.35% in Aug. Over the year, core CPI is expected to stay at +3.1% in Sep, versus +3.1% in Aug.
US private sector/Fed data and speeches.
- US existing home sales for Sep are expected to increase to 4.06m (annualized), up from 4.0m in Aug. Mortgage purchase applications had begun to rebound in Sep, along with falling mortgage rates.
- The Kansas City Fed Manufacturing Index for Oct will be released. The surveys released so far for Oct show mixed results for manufacturing orders and activity, while employment remains subdued but steady, and input price increases remain relatively widespread.
- Michigan Consumer Sentiment – final release for Oct. This is expected to remain around 55.
- There will be limited Fed speeches this week, given the blackout ahead of the FOMC meeting next week.
Global inflation reports for September.
- (Actual) NZ CPI for Q3 was expected to be +0.8%, but increased by +1% over the quarter, versus +0.5% in Q2. Over the year, headline CPI accelerated to +3% in Q3, up from +2.7% in Q2.
- Canada CPI for Sep is expected to fall over the month by -0.1% after a similar fall in Aug. Over the year, headline inflation is expected to remain little changed at around +1.9%. In Aug, CPI ex gasoline increased by +2.4% over the year. Median CPI for Sep is expected to slow slightly to +3% over the year in Sep, from +3.1% in Aug. The trimmed mean inflation rate is expected to remain unchanged at +3% over the year in Sep.
- UK CPI for Sep is expected to increase across both headline and core measures. Headline CPI is expected to increase to +4% over the year in Sep from +3.8% in Aug. Core CPI is also expected to increase to +3.7% in Sep from +3.6% in Aug.
- Japanese core CPI – ex fresh food (the BoJ preferred measure) is expected to increase to +2.9% over the year in Sep, from +2.7% in Aug.
China data for Sep and Q3 growth
The full range of China’s Q3 growth and Sep activity data was released earlier in the week, and ahead of the Fourth Plenum meeting this week. Details of the meeting and review of plans and initiatives will be in focus post the meeting.
S&P Prelim PMIs Oct.
S&P Prelim PMIs for Oct will be released this week, providing an update on private sector activity at the start of Q4.
This week, the US Treasury will auction and settle approx. $532bn in ST Bills, raising approx. $52bn in new money. The US Treasury will also auction to 20-year Bond and 5-year TIPS this week – both will settle on 31 Oct.
QT this week: Approx $10bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Aug 18, 2025
The key events shaping the week commencing 18 August 2025 are: the annual Jackson Hole Symposium on Central Banking, Prelim S&P PMIs August, Global Inflation: UK, Canada, Euro area, and Japan.
Recap from last week: Paving the Way to Jackson Hole
Last week, US economic data provided another important update on tariff impacts feeding into domestic inflation. The latest inflation reports intensified the debate over the trajectory of US inflation and the Fed’s response. The US CPI report was mixed, but initially offered some comfort on tariffs, despite rising core inflation. This, however, was followed by a much hotter-than-expected PPI report, which served as a reality check on the potential impact of tariffs. This highlights the Fed’s primary challenge: distinguishing between persistent, underlying inflation and the potentially temporary but still-concerning effects of tariffs. While the overall growth picture remained mixed, the full impact of tariffs on the broader economy remains a key unknown. All eyes will now be on the US Fed Chair this week at the Jackson Hole symposium for signals on how the Fed will navigate these unknowns.
To better understand these dynamics, the week’s US data provided three key perspectives on domestic inflation, starting with the consumer perspective. Headline CPI came in as expected – with food inflation easing slightly over the year, and energy prices falling – while underlying core inflation accelerated. Core inflation has two factors to disentangle: the impact of tariffs on core goods inflation and a further acceleration in core services inflation. On the core goods front, the tariff effect did not appear to worsen, with core goods prices rising again by +0.2% over the month and increasing to +1.1% over the year. While this seems low, context is important: core goods are no longer providing a deflationary offset like they did before the pandemic. This may complicate the Fed’s task of getting inflation back to the 2% target. Core services inflation remained firm at +3.65% and has stalled at this pace for the last five months, despite continued moderation in shelter prices.
Last month, we were concerned that consumer inflation pressure had broadened out among categories. From a shorter-term perspective, the monthly trimmed mean and median inflation rates eased in Jul, despite the firmer core CPI, suggesting somewhat less broad-based inflation pressure compared to Jun. However, the trend in the annual rates of trimmed mean and median inflation accelerated to new YTD highs this month. This could be an important indicator that inflationary pressures have become broader and remained more persistent than at the start of the year. This was also potentially reflected in some of the firming of consumer inflation expectations data from the prelim Michigan survey for Aug. In other words, consumer-facing inflation pressures are likely still persistent.
The second perspective was the PPI. This measures the average change in the selling prices received by domestic producers for their output. This month, the PPI came in much higher than expected, with both headline and core PPI increasing by +0.9% over the month and accelerating to +3.3% and +3.7% respectively. The release of the report provided a reality check on the potential for tariff impacts. All key areas of PPI final demand prices accelerated this month: goods, food, energy, and services prices. This has been the first month since the introduction of tariffs where the increase in the PPI has accelerated in a meaningful way, and potentially marks a shift where tariff and inflation impacts may be feeding into the system.
The final view is the import price index, which we are using as a proxy to understand whether importers, exporters, or both are bearing the cost of tariffs. The import price index measures the price of imported goods before any duties are applied. The index is used to deflate international trade statistics in the National Accounts data. If import prices are falling, then it’s likely that exporters are lowering prices to help offset the effect of tariffs on their products. If import prices are rising or little changed, then it’s likely that domestic importers are bearing the tariff duty. On aggregate, exporters to the US did not lower prices in Jul. The important index to focus on is the import prices excluding fuels. In Jul, import prices excluding fuels increased by +0.3%, after falling by -0.3% in Jun (revised lower). Over the year, import prices ex fuels were +0.9% in Jul, up slightly from +0.8% in Jun. The 3-month annualized pace is 0%. This suggests, on aggregate, that the burden of tariffs is falling on domestic importers.
Beyond the inflation data, this week’s releases provided a crucial read on the state of domestic demand and the labor market, the other side of the Fed’s balancing act. For the Fed, spending data last week showed a resilient consumer holding things together. Retail sales growth in Jul was relatively good, coming in at +0.5% as expected, with a positive upside revision for Jun to 0.9%. The Atlanta Fed GDPNowcast for the US Q3 GDP growth run rate was steady at +2.5%. The positive contribution from the spending report helped to offset some of the weakness in industrial output in Jul. Initial jobless claims have shown little change in the broad trend of low initial claims, with continuing claims remaining stubbornly elevated.
The broader global growth backdrop stepped down last week. Euro area and UK GDP growth slowed in Q2 as expected – likely reflecting a slowdown after tariff front-running activity in Q1. Japan’s GDP firmed at +0.3% after 0% in Q1. Key data out of China also reflected slower investment growth, slower retail sales growth, and slower industrial output growth for Jul. Even the latest RBA decision cautioned that trade policy developments were “expected to have an adverse effect on global activity”. With new reciprocal tariffs and trade agreements now in place for many, but not all, key trading partners, the crucial question for markets is how economies will adapt to the new tariff regime.
The overall inflation picture still poses a challenge for the Fed, with inflation remaining persistent and additional tariff effects likely, due to their lagged introduction and business uncertainty over final rates. Last week, a rising chorus of calls for a 50bps rate cut by the Fed in Sep was quickly swept aside after the hotter PPI data. The market is still holding onto more aggressive pricing for a rate cut, but the probability has been pared back markedly (Source: CME FedWatch). This diverges from the Fed’s cautious stance, though even within the Fed, there is dissent – mostly over the timing of the path forward. Our focus now shifts to the important Jackson Hole symposium this week.
Outlook for the week ahead: Jackson Hole, Prelim S&P PMIs August, Global Inflation: UK, Canada, Euro area, & Japan.
This week, the focus will shift from data to commentary. The market will be looking to Fed Chair Powell for clarity and guidance on the path of monetary policy. His speech at the annual Jackson Hole Symposium will provide an important lens for how the Fed is thinking about the inflation-labor market dual mandate amid the still notable unknowns on tariffs and complicated by dissent within the Committee and a hostile political backdrop.
Key factors & events to watch this week:
Jackson Hole Symposium, the US Federal Reserve, and the Monetary Policy Outlook.
- The Jackson Hole Symposium is the key event this week from 21-23 August, with the theme “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy”.
- US Fed Chair Powell’s speech is the key highlight, and this is scheduled for Friday, 22 August – the topic of his speech is the Economic Outlook and Policy Framework Review. While he is unlikely to give explicit forward guidance, it will be an opportunity to explain how he is weighing the recent data (persistent inflation versus weaker payrolls), the uncertainty over tariffs, and signalling on the path of policy settings.
- Other central bank speeches may also provide some context for expectations of a global slowdown amid rising tariffs.
- The FOMC Minutes of the last meeting will be released. Of interest in the last meeting was the dissent among committee members regarding the policy decision.
- Other speeches; notably, Vice Chair (Supervision) Bowman and Governor Waller will be speaking earlier in the week at the Blockchain Symposium.
US Domestic Demand and Activity.
Key housing data for Jul will be released this week and will provide an important input into the view of Q3 growth momentum.
- Building permits for Jul are expected to be little changed at 1.39m annualized, from 1.39m in Jun.
- Housing starts (will feed into the GDP nowcast run rate) are expected to moderate further in Jul to 1.3m annualized, from 1.32m in Jun.
- Existing home sales for Jul are expected to be little changed at 3.92m annualized, down slightly from 3.39m in Jun.
- Of note has been the recent rebound in mortgage applications – last week increasing by +10.9% as mortgage rates have begun to moderate. Most of this increase was led by refinance applications.
- US initial claims are expected to remain low at 227k for the wk ending 16 Aug, up slightly from 224k in the prior week. We will continue to watch the level of continuing claims, which remain elevated at 1.953m people.
Global Central Banks and Inflation.
- The RBNZ will meet this week and is expected to cut rates by a further 25bps.
- Global CPI reports will be in focus for several important central banks.
- Canada’s headline CPI for Jul is expected to be little changed at +1.9% over the year, with the monthly rate expected to increase by +0.4% in Jul from +0.2% in Jun. Measures of core inflation are expected to stay firm with the trimmed mean at +3% and the median at +3.1%.
- UK CPI for Jul is expected to edge higher to +3.7% in Jul, after rising to +3.6% in Jun. Rising domestic inflation has been led by key government policy changes.
- The Euro area final CPI for Jul is expected to confirm the prelim headline inflation rate at +2%, with core inflation remaining at +2.3%. Services inflation is expected to slow to +3.1% in Jul.
- Japan National CPI for July is expected to show that the main BoJ measure of underlying inflation, core CPI ex fresh food, moderated from +3.3% in Jun to +3% in Jul.
S&P Flash PMIs for August
S&P Flash PMIs for August will be released later in the week, providing further insight into tariffs’ effects on global output, trade, prices, and business sentiment.
This week, the US Treasury will auction and settle approx. $490bn in ST Bills, raising approx. $89bn in new money. The US Treasury will also auction the 20-year Bond and 30-year TIPS this week, and both to settle at the end of the month.
QT this week: Approx $12bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Aug 11, 2025
Summary; The key events shaping the week commencing 11 August 2025 are: US inflation; CPI, PPI, Import Price Index, US Retail Sales, Global Growth; UK, Japan, and Euro area GDP Q2, and the RBA Monetary Policy Meeting.
Recap from last week: Testing US Economic Resilience at the Start of Q3
While it was a light data week last week, economic releases continued to point to a cautious, moderating US economy at the start of Q3. Further US labor market data showed signs of softening, and divergence in key surveys pointed to an economy with uneven momentum. The backdrop of business hesitation and moderating activity sets the stage for the next critical phase, as the effects of the new tariff regime begin to manifest in official data.
The US PMI surveys for Jul showed more of a two-speed economy, with manufacturing activity continuing to weaken, but offset by expansion in the services sector. However, the two services PMI reports differed somewhat: the ISM survey showed an almost stalled services sector in Jul while the S&P survey showed an accelerated expansion in output. Diving deeper into the S&P US composite PMI for Jul, showed output growth “narrowly led by surging demand in the tech sector alongside rising financial services activity”. The details underlying the stronger services report, and all the PMI reports for July, showed continued subdued optimism in the outlook, caution over hiring, and firmer input and output price increases amid rising tariffs.
This cautious business outlook was reflected in lending standards and demand for credit in the latest US Senior Loan Officer Survey for Q2. Tighter lending standards and weaker demand for credit were reported for commercial and industrial loans and commercial real estate loans. On the consumer front, demand for household mortgages was weaker, standards for credit card loans tightened, and demand for credit card and other consumer loans softened. Demand for auto loans, however, strengthened, consistent with the spike in auto purchases in March and April to front-run tariffs.
Last week’s limited labor market data continued to show a cautious, low-hiring, slow-firing environment. The Conference Board Employment Trends report for Jul reflected that companies have “become hesitant” amid tariff uncertainty, noting, though, that firms have been “pressing pause” rather than leaning into layoffs. The latest initial claims report supports this, but the report shows a concerning trend. While initial claims have fallen back to lower levels, the pool of continuing claims increased further in the latest week, indicating that it still may be difficult to find new work. This increase in continuing claims, which began in late May/Jun, has not yet cleared, and the number reached another near-term high since 2021, of 1.974m in the prior week ending 26 Jul.
A key driver of this elevated caution and moderating activity has been related to the uncertainty around the new tariff regime. Last week, reciprocal tariff rates went into effect, which may reduce some of the uncertainty for firms. The crucial question will be how firms will respond and adapt to tariffs, especially regarding pricing, margins, and sourcing decisions. However, there are still many moving parts on the tariff front. This includes the important trade agreement still under negotiation with China, sectoral tariffs under investigation by the U.S. Trade Representative, and the likely announcement of more sectoral tariffs in the next week or two. In addition, there is the threat of additional tariffs being used as sanctions to achieve geopolitical objectives.
In light of the recent weaker labor market data, moderating activity, and continued uncertainty, it wasn’t surprising that the tone of Fed officials shifted this week. Some speeches noted that the weak jobs data was “concerning” and could signal a “turning point” in the economy. They explicitly discussed the challenges of making policy in a world of tariffs and a two-sided risk of both slowing growth and persistent inflation. Markets are continuing to price in at least two rate cuts by the FOMC for the remainder of the year (source: CME FedWatch).
Outlook for the week ahead – US inflation; CPI, PPI, Import Price Index, US Retail Sales, Global Growth; UK, Japan, and Euro area GDP Q2, and the RBA Monetary Policy Meeting
This week’s focus will be on the central narrative around the tug of war between persistent US inflation and slowing growth. US data will provide further insight into how tariffs are impacting inflation, as well as the first robust input for the Q3 GDP outlook, with key spending and output data for July. Outside of the US, economic growth will also be in focus, offering a view of the tariff impact from a global perspective.
Key factors & events to watch this week
US inflation will be the most important theme of the week:
The US CPI, PPI, and import price index reports will provide three important perspectives on inflation, a detailed update on how tariff effects may be rippling through inflation data, and who is bearing the burden of those tariffs. It will likely be too early to get a read on the ‘finalised’ reciprocal tariffs announced last week.
- US headline CPI is expected to ease over the month to +0.2% in Jul, from +0.3% in Jun. Over the year, headline CPI is expected to edge higher to +2.8% in Jul from +2.7% in Jun.
- Core CPI is expected to increase over the month to +0.3% in Jul from +0.2% in Jun. Annual core CPI is also expected to increase to +3% in Jul from +2.9% in Jun.
- US headline PPI is expected to increase by +0.2% over the month in Jul, from 0% in Jun. Annual headline PPI is expected to increase to +2.5% in Jul from +2.3% in Jun.
- Core PPI is expected to increase by +0.2% over the month in Jul, up from 0% in Jun. Annual core PPI is expected to increase by +2.9% in Jul, up from +2.6% in Jun.
- The import price index is expected to be unchanged at 0% in Jul, after increasing by +0.1% in Jun. Annual import prices would then fall by -0.4%. However, the more important measure of import prices is excluding fuels. This has remained firm over the last few months, with the 3-month annualized rising to +1.9%, now above the annual rate of +1.2% growth in import prices ex fuel imports.
- The export price index is expected to moderate slightly over the month to +0.3% in Jul from +0.5% in Jun.
US domestic demand and activity:
Key data releases will provide a further update on the health of the US consumer and manufacturing activity.
- US retail sales for Jul are expected to increase by +0.5% in Jul, after increasing by +0.6% in Jun. Last week, US vehicle sales for Jul came in stronger than expected, likely helping to boost retail sales. The core retail control group, which feeds into the GDP result, will be important: in Jun this increased by a more robust +0.5%.
- US industrial production growth is expected to be flat in Jul at 0%, after increasing by +0.3% in Jun.
- Initial claims are expected to moderate to 220k last week from 226k in the week prior. The direction of continuing claims will be important after reaching a near-term high of 1.974m in the prior week.
US Fed speeches:
Will be limited this week.
Global growth will also be in focus this week:
Data will provide some insight into growth headwinds from the new trade and tariff regime.
- The prelim Euro area GDP for Q2 is expected to be unchanged at +0.1% over the quarter.
- The prelim GDP for Japan in Q2 is expected to increase by +0.1% over the quarter, up from 0% in Q1.
- The UK GDP for Q2 is expected to moderate to +0.1% growth from +0.7% in Q1.
Aussie data and the RBA monetary policy meeting:
- The RBA will meet this week and is expected to cut rates by 25bps. Last week’s CPI data for Q2 likely helped to ease some of the inflation concerns, with underlying trimmed mean inflation coming in lower than expected, and the annual rate moving further into the RBA’s target band of 2-3% inflation for the second quarter in a row. The RBA outlook and guidance for the path of rate cuts will be a key focus.
- After the meeting, the Aus labour market data for Jul is expected to show some improvement, with net employment increasing by +25k after a more modest +2k increase in Jun. The unemployment rate is also expected to ease from 4.3% in Jun to 4.2% in Jul.
US Treasury auctions:
This week, the US Treasury will auction and settle approx. $615bn in ST Bills, Notes, and Bonds, raising approx. $132bn in new money.
QT this week: Approx $60bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $3.2bn in Notes and Bonds will be redeemed and roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | 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
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
