RBNZ meeting coupled with GDP from the US and Canada, FOMC minutes, PCE and official PMI data from China will highlight the economic data for the week. Tariff talks will again be the main point of focus for the markets. Monday is a holiday in the US, Memorial Day, so US markets will be closed and liquidity will be lower.
USD
Moody’s, a credit rating agency, has downgraded US credit rating from Aaa to Aa1. They were the last credit rating agency to downgrade US. Moody’s now predict that the deficit could increase to staggering 9% of GDP by 2035 mostly due to high interest payments.
The yield on a 10y Treasury started the week at 4.48%, rose to 4.62% and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.01%, rose to 4.03% and finished the week at around 3.98% while the yield on a 30y Treasury crossed the 5% level at the beginning of the week as a result of Moody’s downgrade and went as high as 5.15%. Spread between 2y and 10y Treasuries started the week at 45bp and finished the week at 58bp as curve bear steepened further. FedWatchTool sees the probability of a 25bp rate cut at June meeting at around 5%, while probability of a no cuts is around 95%. September is now the first month with greater than 50% probability of a rate cut. Bitcoin reached new all time high of $112k.
This week we will have FOMC Minutes, second reading o Q1 GDP and Fed’s preferred inflation measure PCE,
Important news for USD:
Wednesday:
FOMC Minutes
Thursday:
GDP
Friday:
PCE
EUR
ECB Governing Council member Schnabel expressed caution over the weekend regarding June rate cut. She stated that it is too early to make that decision and added that warned that falling energy prices and subsequent slowing global growth could lead to lower inflation in the short term but that could all reverse in the medium term. She also expressed her mounting uncertainties caused by global trade tensions. Later on during the week she added that “disinflation is on track, but new shocks are posing new challenges”. ECB policymaker Knot echoed Schnabel call stating that mid-term inflation is too uncertain to say whether June cut is needed. Be mindful that they are among the most hawkish members.
Final headline and core CPI for the month of March came as preliminary reported at 2.2% y/y and 2.7% y/y respectively. Former number was unchanged from the March reading while latter saw increase from 2.4% y/y print the previous month. The numbers could already be conjured based on final readings from the major countries published previous week.
Preliminary May PMI saw manufacturing continue to improve and print 49.4 after 49 in April. Manufacturing has been rising every month in 2025, reaching a 33-month high and is getting closer to expansion territory. Services dropped into contraction with a 48.9 print after a 50.1 print the previous month. Composite was also dragged down into contraction as it reported a 49.5 print. Divergence between France and Germany continued with former showing improvements across the economy while latter experienced drop in services and increase in manufacturing.
GBP
Inflation report for April saw headline number jump to 3.5% y/y from 2.6% y/y in March. Core reading printed 3.8% y/y vs 3.6% y/y as expected and up from 3.4% y/y the previous month. Services inflation surged to 5.4% y/y from 4.7% y/y in March. Digging into the details we can see that almost half of the rise in inflation was due to increase in road tax. Additionally, due to Easter being in April, there was a surge in airline fares of 28% m/m! The Bank of England expects inflation to rise to 3.7% by September, before falling back to the target rate after that. Markets are lowering odds of future BoE rate cuts, June is definitely off the table, but August cut is being put into question.
BoE Chief Economist Pill clarified his decision for a no change vote as a “skip” within continuing withdrawal of monetary policy restriction. He added that inflation indicators are causing concern and that he feels that one 25bp cut per quarter is too much. Additionally, he stated that according to him disinflation process continues and that rates will continue to come down adding that they should not be dependent on how data turns out.
May PMI results saw manufacturing decline further into contraction with 45.1 vs 45.4 in April. Services managed to return into expansion with a 50.2 print after 49 the previous month. However, it was not enough to propel composite into expansion as it printed 49.4 vs 48.5 in April. The report shows subdued optimism about next year and that confidence rebounded.
AUD
RBA has delivered a widely expected 25bp rate cut thus bringing the cash rate to 3.85%. The statement shows that board assesses that this rate cut will make monetary policy somewhat less restrictive. Inflation continues to come down and although inflation is expected to rise during this year, it will go only up to the upper levels of 2-3% target and will be around midpoint of that range throughout much of the forecast period. Global trade situation poses a threat and increases uncertainties around outlook. In making future decisions the board “will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.”
New forecasts saw downgrades to GDP growth and it is now seen at 1.8% in June 2025, 2.2% in June 2026 and 2.2% in June 2027. The unemployment rate is seen ticking up to 4.2% in June, then up to 4.3% in December where it is expected to stay until June of 2027. Cash rate is seen coming down to 3.2% in June of 2026.
Governor Bullock stated that there were discussions whether to cut by 25bp or 50bp and that more adjustments to rate are possible. She added that the main focus of RBA is to keep inflation down and that policy is in a good place to do that. Additionally, she emphasized heightened uncertainty admitting that they were “blown out of the water by the scope of US tariffs”. In the end she confirmed that the bank is data dependent. This all took its toll on AUD that weakened after such dovish messages.
April economic data from China showed industrial production increasing by 6.1% y/y vs 5.5% y/y but down from tariff-induced front-running of 7.7% y/y in March. On the other hand, retail sales rose by 5.1% y/y vs 5.5% y/y as expected and lower from 5.9% y/y the previous month. Although it is still a healthy number miss on expectations is a bit concerning given how much the entire government is focused on raising consumption. Household appliances as well as gold and jewellery, furniture posted biggest y/y growth while auto sales showed almost no growth. PBoC has proceeded and delivered a 10bp rate cut to their 1-year and 5-year LPR bringing them down to 3% and 3.5% respectively.
This week we will have official PMI data from China.
Important news for AUD:
Saturday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Q1 PPI data showed input prices increase by 2.9% q/q after falling -0.9% q/q in Q4 of 2024 while output prices rose 2.1% q/q after declining by -0.1% q/q the previous quarter. According to data the biggest contributors to growth in prices were electricity, gas, water and waste services. They were up 49.4% for input prices and 26.2% for output prices. Producers are facing larger costs, as indicated by rising input prices, but it is not clear if they are passing it all to consumers and as such contribute to inflationary pressures.
This week we will have RBNZ meeting where a 25bp rate cut is fully priced in.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
April CPI report saw headline number drop to 1.7% y/y from 2.3% y/y in March while a 1.6% y/y reading was expected. February print was 2.6% y/y, so inflation growth has slowed down almost a full percentage point. Food and shelter were biggest contributors to inflation while clothing and transportation recorded biggest declines. However, core numbers showed increases. Median and Trim both crossed 3% level with a 3.2% y/y and 3.1% y/y readings respectively, up from 2.9% y/y prints in March. Common printed 2.5% y/y after 2.3% y/y the previous month. BoC will look to pause at their next meeting as core numbers are getting out of the upper bound of inflation target range.
This week we will have Q1 GDP data.
Important news for CAD:
Friday:
GDP
JPY
Preliminary May PMI data saw improvement in manufacturing with a 49 print, after 48.7 print in April. The reading has been steadily moving closer towards expansion but it is still staying in contraction for eleventh straight month. Details show that factory output declined faster than in April while new orders and new export orders declined by a slower pace compared to last month. On the inflation side, input costs continued to rise, but at a slowest pace in over a year while output prices were down to the lowest in almost four years. Services declined to 50.8 from 52.4 in April, still in expansion for the seventh month in a row but not enough to keep composite in expansion as it fell to 49.8 from 51.2 the previous month. Machinery orders exploded in March by rising 13.4% m/m and 8.6% y/y thus lowering recession fears. Yield on a 10y JGB has crossed 1.50% level and on a 30y it is above 3% and reached new all time high.
CHF
SNB total sight deposits for the week ending May 16 came in at CHF443.2bn vs CHF453.2bn the previous week. This is one of the biggest moves in the past six weeks but it only moves deposits from the top of the range back into the middle of the range for deposits.
