Inflation week is ahead of us with CPI prints from the US, UK and Canada coupled with retail sales from the US and China as well as employment data from the UK and Australia.
USD
US Treasury Secretary Bessent stated that countries that do not make deals with the US by August 1 will be slapped with higher tariffs thus effectively postponing the tariff deadline date by three weeks. Commerce Secretary Lutnick echoed the extension of tariff deadline. This postponement does not rule out tariff hikes, but it severely diminishes US leverage in trade negotiations. President Trump has signed an Executive Order officially postponing tariff deadline to August 1.
Trump has stated that Japan and South Korea will be hit with 25% tariffs if there is no deal made by the trade deadline. Additionally, new 50% tariffs will be implemented on copper imports which caused prices to reach new all time high. During the week Trump sent letters to Brazil and Sri Lanka informing them that he will slap them with 50% and 30% tariffs respectively. Brazil’s most impactful exports to US are coffee and orange juice while it is apparel for Sri Lanka. It seems that tariffs against Brazil are connected to charges against former president Jair Bolsonaro. This in turn could make trade deal between countries more difficult to achieve due to political hurdles. Canada has been hit with a 35% tariffs with goods from USMCA agreement being exempt. Over the weekend, letters have been sent to EU and Mexico announcing a 30% tariffs starting from August 1.
The yield on a 10y Treasury started the week at 4.34%, rose to 4.44% and finished the week at around 4.43%. The yield on 2y Treasury started the week at 3.89%, rose to 3.92% and finished the week at around 3.90%. Spread between 2y and 10y Treasuries started the week at 46bp and finished the week at 53bp as curve continued to steepen. 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. BTC has reached new all time high level as it crossed $119k during the weekend while silver climbed over $38.
This week we will have inflation and retail sales data. Inflation is expected to tick up. Chair Powell stated that inflation is expected to pick up in June, July and August due to tariff effects so next few inflation reports will have increased importance.
Important news for USD:
Tuesday:
CPI
Thursday:
Retail Sales
EUR
ECB Chief Economist Phillip Lane stated that bank’s data dependence mode extends to data outside the monetary realm as changes in international and domestic policy regimes have influence on inflation dynamics. He emphasized high uncertainty regarding international trade and added that trade induced uncertainty is the main reason for ECB’s data dependence and meeting-by-meeting approach. Bundesbank president Nagel echoed Lane’s stance on uncertainty and added that in current environment ECB should not make plans or rule out further cuts. ECB Holzmann, the most hawkish member, stated that rates should not be lowered further. President of European Commission Ursula von der Leyen reiterated several times during the week that EU is diligently working on reaching a trade deal with the US. ECB Executive Board member Schnabel stated that threshold for another rate cut is very high as there is no risk of inflation undershooting sustainably. She clarified that if inflation deviates significantly from the path then another rate cut would be appropriate but chances for that are very low. Growth risks are becoming more balanced, monetary policy remains in good place and ECB is starting to become more accommodative.
GBP
BoE Governor Bailey stated that discussion around QT is still ongoing adding that steepening of bond yield curves is occurring in major countries around the world and is not tied exclusively with the UK. May GDP number came in at -0.1% m/m vs 0.1% m/m as expected. Services were the only sector that positively contributed to the reading with a 0.1% m/m print while manufacturing, industry and construction all declined.
This week we will get inflation and employment data. Inflation is expected to come higher than in May.
Important news for GBP:
Wednesday:
CPI
Thursday:
Payrolls Change
Unemployment Rate
AUD
RBA has surprised the markets and left cash rate unchanged at 3.85%. The vote was 6 – 3 in favor of no change. The statement shows that inflation is moderating and that with recent cuts bank now has the luxury to wait for “a little more information”. to confirm that inflation remains on track to reach 2.5% on a sustainable basis. Maintaining price stability and full employment remains bank’s priority and risks to inflation have become more balanced while labor market remains strong.
RBA Governor Bullock stated at the press conference that monthly inflation data is too volatile and that quarterly CPI report presents a much better picture. She also warned that quarterly report can come in higher. So “a little more information” refers to Q2 CPI report that will be published on July 30. Bullock clarified that difference in voting was not about the direction of rates, which will be eased further gradually, but on timing of cuts.
June inflation report from China saw CPI print 0.1% y/y vs flat as expected. This is the first month of positive inflation print since January of 2025 but it is in no way a cause for celebration. Food prices continued to decline and printed -0.3% y/y. PPI continued to plunge as it printed -3.6% y/y for the biggest decline since July of 2023 and making it almost three years of monthly declines.
This week we will have industrial production and retail sales data from China as well as employment data from Australia. It is expected that employment change will bounce back after negative print last month with the unemployment rate staying unchanged.
Important news for AUD:
Tuesday:
Industrial Production (China)
Retail Sales (China)
Trade Balance (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ has left its Official Cash Rate (OCR) unchanged at 3.25% as was widely expected. The statement shows that uncertainty for economic outlook is very high and that increased trade tensions caused by US tariffs will lead to lower global growth which will in turn slow down New Zealand’s economy recover and reduce inflation. Inflation is expected to go to the top of the targeted 1-3% band in over the mid-2025 and then to stabilize around 2% by early 2026. Future path of OCR will be influenced by the speed of economic recovery, persistence of inflation and impact of tariffs. Committee is expected to continue easing rates in the future according to the plan revealed at the May meeting.
CAD
Employment report for the month of June was a huge surprise. Employment change showed economy adding 83.1k jobs vs 0 jobs as expected. The unemployment rate ticked down to 6.9% from 7% while markets were bracing for a tick up to 7.1%. All this was achieved with participation rate increasing to 65.4%. Wages were up 3.2% y/y, down from 3.5% y/y in May indicating that inflation pressures will not come from the demand side. The structure of jobs is a bit concerning as economy added 13.5k full-time jobs and 69.5k part-time jobs. BoC was destined to pause at their next meeting so this reports just cements their stance.
This week we will have inflation data expected to show further declines.
Important news for CAD:
Tuesday:
CPI
JPY
Nominal wages rose in May by 1% y/y vs 2.4% y/y as expected and down from 2% y/y in April. This represents the weakest wage growth since March of last year. When inflation is take into account real wages have dropped 2.9% y/y thus making it five consecutive months of falling real wages and the biggest fall in two years. Weak wage growth will just reaffirm BoJ’s pause stance and delay rate hikes further into the future.
CHF
SNB total sight deposits for the week ending July 4 came in at CHF459.8bn vs CHF460.7bn the previous week. Just a small move down but considering the range for the year still at the highs.
