RBA and RBNZ meetings will lead the economic releases this week but the highlight will be on Wednesday July 9 when 90-day pause in reciprocal tariffs expires. Great uncertainty surrounds the tariff date and although tariffs as high on April 2 are not expected it will still bring increased volatility into the markets.
USD
ISM manufacturing PMI for the month of June came in at 49 vs 48.8 as expected and up from 48.5 in May. Production returned to expansion and there was a jump in new export orders although from a very small base in May. On the other hand, new orders and employment indexes declined further into contraction. Additionally, prices paid increased again and is still running at a scorching hot 69.7.
Fed Chair Powell spoke at the ECB conference in Sintra and reiterated that higher inflation in Summer months is expected due to tariff pressures. He also reiterated that economy is in a good position which gives Fed opportunity to be data-dependent and make decisions on a meeting-by-meeting basis. He did not rule out July rate cut though and emphasized vigilance regarding their dual mandate (inflation and unemployment).
June NFP headline number came in at 147k vs 110k as expected. The unemployment rate surprised and ticked down to 4.1% (4.117% unrounded) from 4.2% while markets were expecting a 4.3% print. Participation rate also ticked down to 62.3%. Average weekly hours ticked down to 34.2 hours while wages showed slower growth as they came in at 0.2% m/m and 3.7% y/y vs 0.4% m/m and 3.8% y/y in May. Government added 73k jobs, followed by health care with 39k jobs added. This report should remove any chance of a July rate hike and lower the chances of September cut. ADP printed -33k thus showing that private sector reduced employment for the first time since March of 2023 and proved again that it’s predictive power of NFP is non-existent.
ISM services PMI for the month of June returned to expansion with a 50.8 print after 49.9 in May. New orders and new export orders indexes returned to expansion and there was a big jump in business activity index moving it deeper into expansion. Prices paid declined a bit but are still at a very high level. Employment index is the most worrying component as it dropped into contraction and printed 47.7, the lowest since Match.
Big Beautiful Bill has passed the Congress. The bill is continuing with tax cuts from Trump’s first term as a president and is seen leading to spending of around $7tln per year. With inflows of around $5tln it is expected that debt burden will increase from around 100% of GDP to around 130% of GDP. It will as such put a big pressure on long-dated Treasuries. The idea is that funds injected by this bill will lead to growth which will in turn be able to cover the increase in debt, thus ultimately lowering it.
President Trump has announced that a new US – Vietnam trade deal has been reached thus Vietnam. This new deal has imports from Vietnam tariffed at 20% while transshipped goods will be tariffed at 40%. Transshipping is the process of transferring goods from one vessel or mode of transport to another while en route to their final destination. It is commonly used to optimize shipping routes, reduce costs, or comply with logistical or regulatory constraints. For example, goods manufactured in China might first be shipped to a port in Vietnam, where they are unloaded and then reloaded onto a different vessel before continuing on to the United States—this intermediate step is a typical case of transshipping. Trump also said that he will be sending letters out to 10 or 12 US trading partners, and that tariffs would range in value between 10% and 70%. He added that tariffs will come into effect on August 1. It is possible that trade deal with India gets done before July 9, but deals with Japan and EU seem unlikely.
The yield on a 10y Treasury started the week at 4.28%, rose to 4.36% and finished the week at around 4.35%. The yield on 2y Treasury started the week at 3.75%, rose to 3.90% and finished the week at around 3.88%. Spread between 2y and 10y Treasuries started the week at 53bp and finished the week at 47bp as curve flattened. FedWatchTool sees the probability of a 25bp rate cut at July meeting drop to around 5% after NFP report, while probability of a no cuts is around 95%. September still remains the first month with greater than 50% probability of a rate cut.
EUR
Preliminary June inflation ticked up to 2% y/y from 1.9% y/y in May. Core inflation remained unchanged at 2.4% y/y, German June inflation slid to 2% y/y from 2.1% y/y in May, below expectations of 2.2% y/y. Final manufacturing PMI for June ticked up to 49.5 from 49.4 on the back of strong Spanish reading and improved French reading. Manufacturing is getting closer to the expansionary levels and it has been rising each month in 2025. Final services improved to 50.5 from 50 as preliminary reported on the back of improvements in both German and French readings that are now very close to the expansion level (49.7 and 49.6 respectively) and thus lifted the composite to 50.6 from 50.2 as preliminary reported.
At the ECB conference in Sintra, President Lagarde stated that they have achieved their target of 2% inflation but that they have to remain vigilant as they stay in data-dependent meeting-by meeting-mode. EURUSD has crossed the 1.18 level during the week.
GBP
Final Q1 GDP came in unchanged at 0.7% q/q and 1.3% y/y. All three sectors showed increases with services rising 0.7%, production 1.3% and construction 0.3%. Growth in the latest quarter was driven by increases in business investment (3.9%), net trade (exports rose 3.3% while imports rose 2%) and household consumption (real consumption rose 0.4%). Final services June PMI saw a big revision as it printed healthy 52.8, up from 50.7 as preliminary reported and 50.3 in May. New orders rose as consumer spending improved. New export orders declined due to lower external demand and employment index also declined as firms seem to be reluctant to hire new stuff. Input costs and output charges had increased but at a slowest pace in over four years. Composite was lifted to 52 from 50.7 as preliminary reported and 50.3 the previous month.
BoE Governor Bailey, spoke in Sintra and reiterated importance of paying close attention to consequences of inflation and its persistence and that path of interest rates will be gradually downwards. He also gave comments that could be interpreted as BoE’s intention to ease the pace of their QT program. Long-dated Gilts are experiencing increases in yields with 30y yielding around 5.2% which is the highest level in almost 30 years. Reduction in QT is aimed solely at bringing down yields.
UK Gilt yields surged on Wednesday, and GBP dropped as a result, as the markets started to worry about the possible sacking of the UK Chancellor, after the Prime Minister failed to back Rachel Reeves during a bruising Prime Minister’s questions. The focus during questioning was on the need to raise taxes and to potentially issue more borrowing to cover the cost of Labour’s plans. However, the bond market revolt suggests that these two options are not viable when national debt is so high and the economy is so weak.
AUD
Official Chinese June PMI data saw manufacturing print 49.7 as expected, up from 49.5 in May. The print remains in contraction for the third straight month but it is moving closer to expansion as new orders already rose back into expansion with a 50.2 print and new export orders improved greatly, although from a very weak starting point. Non manufacturing print improved to 50.5 while markets were expecting it to stay unchanged at 50.3. Composite was lifted to 50.7 from 50.4 the previous month. NBS assessed that market demand is improving with accelerating production but domestic consumption remains week.
Caixin manufacturing PMI returned into expansion with a 50.4 print vs 48.3 in May. Apart from May, manufacturing has been in expansion for the entire year. The report shows production and new orders increasing. On the other hand, new export orders continue to decline indicating weak external demand. Employment, input and output prices and business confidence all experienced further falls. Caixin services stayed in expansion with a 50.6 print, but eased from 51.1 in May due to weaker demand and falling export orders while employment index declined due to slower hiring. Composite was lifted to 51.3 by the strong manufacturing reading.
This week we will have RBA meeting and inflation data from China. RBA is expected to deliver a 25bp rate cut as May employment report saw job losses and inflation is coming down.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Wednesday:
CPI (China)
NZD
ANZ business confidence for the month of June jumped to 46.3 from 36.6 in May. Improvements were seen in the activity outlook, investment and employment intentions, construction as well as ease of credit. On the other hand, cost expectations surged sending worrying signs about inflation coming from high input prices while inflation expectations for 1 year out remained at 2.71%.
This week we will have RBNZ meeting. No change in rate is expected as bank proceeds with their planed pause.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
May trade balance showed a deficit of -CAD5.9bn, lower than -CAD7.6bn seen in April. Exports have risen by 1.1% while imports declined by 1.6%. CAD had weakened as the week started, then managed to find its footing and gain strength only to weaken again as the week came to a close. Canada has removed the digital tax on US companies and thus received an extension on time to make a deal until July 21.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Final manufacturing for the month of June was revised down to 50.1 from 50.4 as preliminary reported. Still, it shows the first month in expansion in thirteen months. Business optimism among manufacturers jumped to new five-month high. Employment index rose for the seventh month in a row. Final services were revised up to 51.7 from 51.5 as preliminary reported as business confidence reached a four-month high coupled with strong employment growth. On the inflation front we had a decline in input prices but output prices continued to rise. Composite ticked up to 51.5 from 51.4 as preliminary reported. May spending data showed a huge jump as it printed 4.7% y/y vs 1.2% y/y as expected. Couple more of such strong spending reports and rate hikes in 2025 could be back on the table.
BoJ Governor Ueda reiterated in Sintra that underlying inflation is still below their 2% target. Any future rate hikes will depend on the overall inflation dynamics as well as wage growth and inflation expectations.
CHF
SNB total sight deposits for the week ending June 26 came in at CHF460.7bn vs CHF442.5bn the previous week. Unusually large jump, level not seen since the end of 2024, as SNB seems to be taking some action in the FX market before the quarter ends. June inflation report showed headline CPI at 0.1% y/y, up from -0.1% y/y in May. Core CPI also increased printing 0.6% y/y vs 0.5% y/y the previous month. It is still to be seen whether Switzerland is out of deflation but for now SNB may take a deep breath of relief as inflation turned back positive.
