A slew of PMI releases (Mon/Wed), the ECB’s rate decision (Thu), and US non-farm payrolls (Fri) are key events this week. Later today, we have the US ISM manufacturing and construction spending reports, and we will hear from Fed officials Powell, Waller, Logan, and Goolsbee. On Tuesday, China’s Caixin manufacturing PMI, Eurozone CPI and unemployment, and US job openings data are due. Fed speakers Logan, Goolsbee, and Daly also feature. On Wednesday, Bostic and Cook will moderate a Fed Listens event. China’s Caixin services PMI is out Thursday, along with Eurozone PPI, German factory orders, and US trade balance and initial jobless claims. To end the week, Eurozone retail sales and GDP, as well as the US employment report and consumer credit, will likely command market attention.
Tariff uncertainty dominated market sentiment last week, beginning with the announcement of a delay in EU duties. However, the real market mover was a US federal court ruling that blocked many of Trump’s tariffs, stating he had overstepped his authority by invoking the International Emergency Economic Powers Act (IEEPA) of 1977 to impose sweeping import taxes. The Trump administration appealed, the appeals court reinstated the tariffs on Thursday, allowing the US to continue collecting them under the IEEPA during the appeals process. This includes reciprocal tariffs and fentanyl-related tariffs on China, Mexico, and Canada. Tariffs on automobiles, steel, and aluminium remain in place under separate legal authorities.
US Treasury yields fell modestly on Friday amid renewed trade tensions after Trump accused China of backtracking on tariff commitments and delaying rare earth export licenses. Trump also announced that steel and aluminium tariffs would double from 25% to 50%, effective June 4. The 10-year yield fell 11bps to 4.40%, while the S&P 500 rose 1.88%. Having experienced a rollercoaster week, the DXY Index ended the week 0.22% higher. Oil prices declined 1.36% to $63.90bp, amid OPEC+’s July production increase announcement.
US economic data remained mixed. Q1 2025 GDP contracted by 0.2%qoq, with personal consumption coming in below expectations at 1.2%. The GDP price index held steady at 3.7%, while the core gauge eased to 3.4%. Pending home sales fell sharply, marking the biggest drop in a year. Headline PCE inflation declined to 2.1%yoy (prev: 2.3%), while core PCE edged down to 2.5%yoy. The University of Michigan sentiment and expectations readings rose marginally, and inflation expectations declined notably: the 1-year outlook dropped to 6.6% (from 7.3%) and 5–10 year to 4.2% (from 4.6%).
The FOMC minutes underscored rising uncertainty about the economic outlook, prompting a cautious policy stance until the impact of recent changes becomes clearer. While inflation is projected to spike in 2025 due to tariffs before easing toward 2% by 2027, growth forecasts for 2025 and 2026 were revised downward. Several Fed officials, including Kashkari, warned that tariffs could contribute to stagflation, although labour market conditions remain broadly balanced.
Elsewhere, China’s official manufacturing PMI rose slightly to 49.5 in May (from 49.0 in April), with business expectations improving to 52.5. However, producer prices (44.7) and inventory levels (46.5) declined, reflecting continued corporate caution amid trade uncertainties. China also unveiled a comprehensive economic agenda, deepening ASEAN engagement under Xi Jinping’s “shared future” vision. The core of this initiative is urbanisation reform, aiming for a “triple dividend”: enhanced social equity, reduced housing overhang, and stronger consumption. Structural reforms will also emphasise private sector empowerment and the exit of inefficient “zombie” firms to tackle chronic overcapacity.
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