Written Commentary
Latest tariff salvo to overshadow somewhat busier day for statistics, with UK monthly GDP and activity indicators to digest ahead of Canada labour report and US Treasury Budget; CASDE, WASDE and IEA Oil Market report also in view, along with sprinkling of central bank speakers
UK: GDP weak on further tariffs related drag on Manufacturing, setback in Construction; start of fiscal year tax increases weighing on Services; more bad news for government, but imparts downside risks to rate outlook
US: threat of higher baseline tariffs on back of equity market resilience heightens risk of overreach
EVENTS PREVIEW
The week ends with slightly more significant statistical items, via way of UK monthly GDP and activity indicators, and Canadian labour data, German WPI, Turkey Current Account and US Treasury Budget thrown in for good measure. There are a few more ECB speakers, but the main events will be in commodities with the monthly USDA WASDE, China CASDE and IEA Oil Market reports. Eminently the trade tariffs and related negotiations narrative remains front and centre, as the US is now talking about 35% tariffs on some Canadian imports (justified on fentanyl), and a higher 15 to 20% ‘blanket’ rate elsewhere, bizarrely citing the strong gains/resilience in equity markets as a rationale, which underlines the risk of a major overreach, as well as an attempt to grab higher tariff revenues. Next week brings a rush of major data from the US (CPI, PPI, Retail Sales, Industrial Production, Beige Book), China (Trade, Retail Sales, Industrial Production, FAI, Property Investment), UK (CPI, Unemployment, Wages, BRC Retail Sales) and Japan (National CPI, Trade, Orders), accompanied by Germany’s ZEW, Canada CPI and Australian Employment.
** U.K. – May GDP and activity indicators **
– As the saying goes, it never rains but it pours, as a further 0.1% m/m drop in May GDP only serves to compound concerns about the UK economic outlook and fiscal challenges. That said, the primary drag again came from Manufacturing (-1.0% m/m, following a modest upward revision to April to -0.7% m/m from -0.9%), along with a sharp -0.6% m/m reversal in Construction Output following +0.8% m/m in April. Manufacturing will remain subject to sharp fluctuations thanks to trade tensions, and there may be a modest boost in June and/or July on the back of the UK/US framework trade agreement. Otherwise, Services posted an expected 0.1% m/m increase, with the start of fiscal year increases in taxes, levies and minimum wages likely to have weighed on sector output. While the government will remain under pressure to change course, it also suggests along with the drop in labour demand that the BOE may need to take a more aggressive stance on rate cuts in H2 2025.
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