Preliminary June PMI data from the Eurozone and the UK as well as inflation data from the US and Canada will highlight the week from the economic data standpoint. Trump posts, trade policy, potential further escalation in the Middle East, Powell’s testimony in front of the Congress as well as quarter end rebalancing will give markets plenty of headaches.
USD
Strength of US consumer showed some disappointing signs as headline number printed -0.9% m/m vs -0.7% m/m after a -0.1% m/m print in April thus falling for the second month in a row. However, control group, a better prediction of consumer strength, rose 0.4% m/m vs 0.3% m/m as expected and up from -0.1% m/m the previous month. Digging into the details we see that biggest increases were seen in miscellaneous (2.9%) as well as clothing and accessories and non-store (online) retail. The biggest decreases were seen in autos (-3.5%), building materials (-2.7%) as well as food services and drinking places. Food services and drinking places are good barometer of consumer discretionary spending and them going down is a troubling sign. Still, we cannot extrapolate from one reading.
Fed has left federal interest rate in the range of 4.25-4.50% as was widely expected. The decision was unanimous. The statement shows that recent indicators suggest continuation in expansion of economic activity with solid labor market conditions and low unemployment rate. Inflation, however, remains somewhat elevated. Uncertainty about the economic outlook has diminished but remains elevated. The committee is attentive to risks on both sides of its dual mandate and will continue to monitor situation, remain data-dependent and make decisions meeting-by-meeting.
Dot plot shows two rate cuts for this year with rates expected to finish year at 3.9%. Rates have been moved higher for the coming years and now are seen at 3.6% in 20246 were 3.4% in March and 3.4% in 2027, were 3.1% in March. Longer term neutral rate remained at 3%. Summary of Economic Projections shows lower GDP projection for 2025 (1.4% vs 1.7% in March) and 2026 (1.6% vs 1.8% in March). The unemployment rate is now seen at 4.5% for 2025 and 2026 vs 4.4% and 4.3% respectively in March. PCE inflation was revised higher to 3% for 2025, 2.4% for 2026 and 2.1% for 2027, returning to 2% target in the long run.
Chariman Powell stated during the press conference that Fed is expecting a meaningful increase in inflation in the coming months due to tariffs and they are waiting to see the effects of price increases. On the labour market he stated that it is not “crying out for a rate cut” and that wages are coming down and as such are not the source of inflation. He assessed monetary policy as appropriate and in a good place given the resilient economy and added that rate cuts will be in order once the data confirms. Powell did not really disclose anything new, although on the edge it could be said that he sounded hawkish, given that he did not express any notable concerns.
The yield on a 10y Treasury started the week at 4.41%, rose to 4.46% and finished the week at around 4.38%. The yield on 2y Treasury started the week at 3.96%, rose to 4% and finished the week at around 3.90%. Spread between 2y and 10y Treasuries started the week at 46bp and finished the week at 49bp as curve steepened. FedWatchTool sees the probability of a 25bp rate cut at July meeting at around 10%, while probability of a no cuts is around 90%. September remains the first month with greater than 50% probability of a rate cut.
This week we will have Fed Chair Powell testimony in front of the Congress as well as Fed’s preferred inflation measure PCE.
Important news for USD:
Tuesday-Wednesday:
Powell Testimony
Friday:
PCE
EUR
ECB policymaker, head of Bundesbank, Joachim Nagel stated that it would not be wise to signal either a rate cut or a pause at the moment. He thinks that bank must remain flexible. Incoming data suggests that mission is accomplished but that bank needs to have all options open when it comes to interest rates. Q1 wages costs have eased to 3.4% y/y from 4.1% y/y in Q4 of 2024. Decline in wage costs means increased profit margins for firms and it lowers the probability of demand-pull inflation. First data point in June, ZEW survey, showed big jumps in expectations for both German economy and Eurozone economy. Final CPI for the month of May was unchanged at 1.9% y/y for headline and 2.4% y/y for core.
This week we will have preliminary June PMI data expected to show further improvement and return to expansion.
Important news for EUR:
Monday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
GBP
May inflation data saw both numbers ease as expected. Headline print came in at 3.4% y/y vs 3.5% y/y in April while core number printed 3.5% y/y vs 3.8% y/y the previous month. Services inflation came down to 4.7% y/y from 5.4% y/y seen in April. Last month’s numbers had some quirks, for example airline fares experienced a huge jump due to Easter holiday, but now inflation is slowly returning to its downward trend.
BoE has left rate unchanged at 4.25% as widely expect but, as we suspected, vote was showing 6-3 instead of 7-2 as markets expected. Dhingra, Taylor and Ramsden voted for a 25bp rate cut. The statement shows that GDP remains weak and labour market continues to loosen. Risks to inflation are now seen as two-sided. Members emphasized importance of gradual and careful approach to withdrawal of policy restraints and added that “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.“ Markets are still pricing August cut.
Retail sales disappointed in May falling 2.7% m/m after rising 1.2% m/m in April and declining 1.3% y/y. The biggest drops were seen in sales of household goods and food followed by a drop in clothing sales.
This week we will have preliminary June PMI data expected to show some improvements.
Important news for GBP:
Monday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
May employment report saw economy lose 2.5k jobs vs add 25k jobs as was expected. The unemployment rate remained at 4.1% while participation rate ticked down to 67%. Structure of jobs added is much more favorable as it sees 38.7k full-time jobs added while part-time jobs saw a loss of 41.1k.
Economic data from China for the month of May showed a big increase in retail sales. They have risen 6.4% y/y after a 5.1% y/y increase in April thus making it the biggest increase since December of 2023. The details show fastest growth in household appliances as well as in communication appliances. Industrial production slowed growth as it printed, still very healthy, 5.8% y/y after a 6.1% print the previous month. Hi-tech production experienced stronger growth while low-end manufacturing shrank.
NZD
Consumer confidence for Q2 increased to 91.2 from 89.2 in Q1. Reminder that 100 is seen as the dividing line between optimism and pessimism so this reading can be seen more as carving a bottom rather than a meaningful improvement. Q1 GDP saw a 0.8% q/q growth vs 0.7% q/q as expected and up from 0.5% q/q in Q4 of 2024 as well as -0.7% y/y vs -1.3% y/y in the previous quarter.
CAD
Housing starts in May brought strong results as it printed 279.5k vs 245k as expected with positive revisions to April reading. April retail sales data showed an increase of 0.3% m/m vs 0.5% m/m as expected with ex autos category printing -0.3% m/m vs 0.2% m/m as expected. Advanced reading for May showed retail sales declining further 1.1% m/m which raises concerns about potential nosedive of Canadian consumer.
This week we will have inflation data expected to show decline.
Important news for CAD:
Tuesday:
CPI
JPY
BoJ has left the rate unchanged at 25bp, as was widely expected, with a unanimous vote. They will start tapering bond purchases right away at the tune of JPY400bn per quarter until Q1 of 2026. From Q2 of 2026 they will lower purchases by JPY200bn and then keep it at JPY2tn from Q1 of 2027. The decision was made with a 8-1 vote as one member wanted market to determine long-term rates. Economy has recovered moderately but uncertainties related to trade tensions around the world will cause weakness in other economies which in turn will dampen economic recovery in Japan. Inflation is expected to remain sluggish and come down due to weaker demand expected caused by the economic slowdown.
BoJ Governor Ueda stated that their easy monetary policy is helping with economic recovery and that they will continue raising rates if economy and prices improve. He added that there both upside and downside risks to prices and that they are vigilantly monitoring data when deciding about next policy moves. Ueda clarified that decision to taper bond buying is made with intent to prevent excessive market volatility that would negatively impact economy. Overall, the statement and press conference emphasize that BoJ will not rush with rate hikes and will wait until they get satisfying data and economic conditions.
Prime Minister Ishiba stated that cash handouts are the cleanest and fastest way to reach citizens and help them with high prices. He added that he will continue to work intensely with US on reaching a trade deal. The deal has to benefit both countries and defend Japan’s national interest.
May inflation data showed headline number tick down to 3.5% y/y from 3.6% y/y in April on the back of lower food prices. Government has released its rice reserves which helped bring prices down. However, core measures paint a different story. CPI ex fresh food rose to 3.7% y/y from 3.5% y/y the previous month, highest reading since December of 2023, with markets expecting a 3.6% y/y print while ex fresh food, energy rose to 3.3% y/y from 3% y/y in April and more than 3.2% y/y as expected. Inflation remains well above the target but BoJ will not react until there is more clarity on trade relationship with the US.
CHF
SNB total sight deposits for the week ending June 16 came in at CHF434.8bn vs CHF438.1bn the previous week. This is the second consecutive week of declining deposits as they are moving down into the well-established range.
SNB has delivered a widely expected 25bp rate cut thus bringing the rate down to 0%. They have emphasized uncertainties for both Swiss and global economies and reiterated their readiness to intervene in the FX market if necessary. New projections see GDP for 2025 unchanged at 1-1.5%. That same range is seen for 2026 as well but it was seen previously at 1.5%. Inflation has been revised down to 0.2% from 0.4% for 2025, to 0.5% from 0.8% for 2026 and to 0.7% also from 0.8% for 2027. Chairman Schlegel stated that they are aware of undesirable effects of negative interest rates but they have been an important monetary tool in the past. Not fully opening the door for negative rates but the probability of them being reintroduced has increased.
