Macroeconomics: The Week Ahead: 2-6 June 2025

The Week Ahead – Preview: 

The incessant cacophony of trade related headlines continues to buffet markets up and down, as Friday’s initial headlines about the US accusing China of ‘violating’ the truce agreed in Geneva between both sides in mid-May sent markets into a spin, before rallying on the suggestion that Trump and Xi would be holding talks in the near future. This seemingly permanent state of ambiguity is something that markets, political and monetary policy makers will just have to live with, and the accompanying uncertainty, augmented by the legal challenges to tariff implementation. Both euphoria and despondency should be eschewed. But in mediated by social media, and a high volume of automated market trades, this is inevitably very challenging. But it does put an even higher premium on meticulous discipline, both in trading and in any analysis. Incoming data will in some cases be subject to extreme volatility, as per the example of Friday’s US Goods Trade data, which saw the deficit swing from a record $-162.3 Bln to $-87.6 Bln, thanks to an unprecedented -19.8% m/m drop in Imports. This in turn sawa the Atlanta Fed Q2 GDPnowcast surge from 2.2% to 3.8%. National and geopolitics will thus remain the overriding factors, with the return of the US Congress from its short recess putting the focus once more on the passage of the Tax and Spending BUll, which will likely remain a protracted process, and keeps focus on the other overarching concerns about sovereign debt levels.

Be that as it may, the new week brings the familiar start of month run of data – Manufacturing & Services PMIs worldwide, US labour indicators (JOLTS, ADP, Payrolls), Auto Sales & Construction Spending, Eurozone CPI, Japan Q1 CapEx & Corporate Profits, Household Spending & Labour Cash Earnings, German Orders, Production & Trade, Australian & South Korea Q1 GDP. All 3 major central bank meetings in Canada, Eurozone and India are expected to see rates cut by a further 25 bps to 2.50%, 2.25% and 5.75% respectively, though their messaging on further rate cuts will above all be in focus, with both the ECB and BoC getting ever closer to likely terminal rates for the current cycle. There is the OPEC+ decision to increase July output by 411K for a third month to digest, despite reservations from Russia, Algeria and Oman, who argued for no change, and sets up a very tense production meeting on July 6. It should perhaps be borne in mind that Saudi Arabia, U.A.E. and Kuwait have increased their refining capacity sharply over recent years, offering a considerable cushion against the fall in crude prices. But this will do nothing to reduce tensions within an increasingly fractious extended cartel. Tuesday has South Korea’s presidential election and follows the narrow victory of the opposition PIS candidate in Poland’s presidential election, which will make it nigh on impossible for PM Tusk to pass any significant reforms that might improve relations with and unlock further funds from the EU, which were blocked under the previous PIS government. Numerous holidays will also punctuate the week, with many Islamic countries closed on Friday for Eid Al-adha (Feast of the Sacrifice)

– PMIs/ISMs: The continuing uncertainty about US tariff implementation sits heavily on surveys, and render the outcomes rather meaningless, with sharper swings a function of whatever happens to be the latest headlines at the time of a given survey’s response collection. Price, Employment and to some extent Orders sub-indices are of some interest, but activity indicators will likely be blown around in the winds of the geopolitical rhetoric, and underlying trends are near impossible to discern in such a volatile environment. Suffice it to say, overall survey outturns will likely suggest that activity is depressed, but hard (official) data will frequently paint a less subdued picture.

– U.S.A.: the run of labour indicators dominates, and perhaps offer the strongest indications about how businesses are dealing with the lack of visibility on the economic outlook. While frequently quite heavily revised, JOLTS Job Openings continue to point to a persistent loosening in labour demand, with a further drop to 7.100 Mln from 7.192 Mln expected, matching September’s recent cyclical low, but at the top of the pre-pandemic range. The ADP Employment gauge remains a better proxy for the Household survey that provide the Unemployment Rate than the establishment Payrolls survey, with a modest rebound from 62K from 110K expected. A closer eye needs to be kept on weekly jobless claims that have drifted higher over recent weeks but are expected to ease back to 235K from last week’s 240K, while Continued Claims are expected to edge down to 1.910 Mln after hitting a peak of 1.919 Mln, the highest since Q4 2021. Friday’s Payrolls are forecast to drop back to 125K from a stronger than expected 177K in April, still suggesting that labour demand is running at a pace that will keep the Unemployment rate broadly steady, and in line with forecasts of an unchanged 4.2%. Per se if forecasts are correct, they are likely to reinforce the Fed’s cautious ‘wait and see’ stance. Given last year’s misread of the labour market that prompted the overly hasty 50 bps initial rate cut, the FOMC will probably be rather more cautious in reacting to any significant weakening in labour market indicators. Elsewhere Auto Sales are expected to mean revert to 16.0 Mln after two months of way above trend readings of 17.27 Mln and 17.77 Mln as consumers rushed to beat tariff related price increases, thus far pass through on auto prices has been non-existent (as per CPI sub-indices), and will likely materialize in H2, once pre-tariff inventories have been depleted (as per Waller’s comments over the weekend on when tariff related price pressures are more broadly likely to be seen). The Fed’s Beige Book will be of note with regards to indications on how much of a boost there was from the US China tariff truce in early May, or whether broader concerns about the economic outlook tempered any relief, aside from sectors such as logistics which high frequency and port / freight data confirm saw a boost as importers rushed to exploit the window offered to utilize the lowered (though not low) rates.

– Eurozone: Monday CPI is projected to ease to target at 2.0% y/y in headline terms, and more significantly to 2.4% y/y from 2.7% on the core measure, echoing national readings, and reinforcing expectations that the ECB will lower the Depo Rate 25 bps to 2.0% (the consensual estimate of the ‘neutral’ rate), and Refi to 2.10%. The sharp drop in negotiated wage settlements (2.4% y/y), continued downward pressure om energy prices, and the downside risks to growth from global trade tensions will also underpin that decision. The question is whether this combination of well-behaved inflation and weak growth are seen as justifying a move to a more accommodative policy stance. While there are some divisions on the council over the appropriate policy stance, the majority clearly favour leaving the door open to further easing but are unlikely to want to pre-commit to any further moves, and preserve the guidance that rates will be set on a meeting by meeting basis. A pause in July and a further 25 bps cut in September looks to be the most likely scenario at the current juncture.

– Japan: The focus remains on Japan’s debt woes, and the BoJ’s dilemma on further rate hikes. Monday’s Q1 CapEx proved to be much stronger than expected at 6.4% y/y (vs. forecast 3.8%), even if the pressure on Corporate Profits (3.8% vs. expected 6.0%) from higher inflation and trade concerns was evident. There was doubtless a boost to CapEx as companies looked to beat tariffs, but the weakness of domestic consumption will likely ensure that the upward revision to GDP from a provisional -0.7% q/q will still leave th outturn modestly negative. Data later in the week are expected to show a furher boost to Labour Cash Earnings to 2.6% y/y from 2.3%, but Real Earnings would remain heavily negative at -1.5% y/y, a marginal improvement from March’s -1.8%. Household Consumption is set to slow to 1.5% y/y after a very artificial base effect related boost to 2.1% y/y in March, the underlying trend remains one of modest contraction. Demand at this week’s 10-yr JGB auction will be the other point of focus, though 10-yr yields have not been subject to the same upward pressures as 20, 30 & 40-yr yields (see attached chart), fluctuating with BoJ rate expectations in a relatively well contained, though still quite choppy range.

– Canada: Friday’s Q1 GDP flattered to deceive at 2.2% SAAR vs. expected 1.7%, thanks to a massive surge in Inventories, with Household Consumption slowing very sharply to 1.2% from Q4 4.9%, and Business CapEx cratered (-3.1% vs. prior +9.4%), which resulted in Final Domestic Demand falling -0.1%, after trending around 3.0% for most of 2024. Q2 GDP will likely be very weak, thanks to soft labour demand and a drop in trade, and per se makes the case for the BoC to make an additional cut this week after pausing in April. But the rebound in April’s core CPI measures to 3.1/3.2% y/y will make the BoC very cautious about a further cut (as is expected), and likely wanting to see how the trade tariff situation with the US evolves, and indeed to see what the new Carney government implements in terms of any fiscal boost. A July rate cut is thus perhaps more likely than this week.

– India: While Friday’s Q1 GDP and GVA proved to be stronger than expected at 7.4% and 6.8% y/y respectively, Fiscal 2025 GDP still slowed sharply to 6.5%. Inflation continues to undershoot the RBI’s expectations, thanks to lower food prices and weak energy prices, and the RBI’s policy stance remains modestly restrictive according to its own analysis. As such a third 25 bps rate cut to 5.75% on Friday looks to be something of a ‘slam dunk’, but there are divergent views on how much further rates will be cut this year, with the consensus looking for one further cut thereafter, while others suggest there may be as many a three further cuts, predicated on subdued inflation, headwinds to trade and lower energy prices.

– There are 8 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Broadcom, Crowdstrike, Ferguson Enterprises, Lululemon Athletica and Samsara.