In this episode:
- Global Data Outlook
- ECB Policy Outlook
- US Macro Outlook
Global Data Outlook
- Lingering Trade Risks: From 50% EU tariffs to US Trade Court retaliation, trade uncertainty still clouds the global outlook.
- China PMI Watch: May PMI prints (Saturday, Tuesday, Thursday) will offer clues on China’s momentum.
- Key Global Releases: Eurozone CPI (Tuesday), retail sales, Aussie Q1 GDP, and Japan spending could sway sentiment.
ECB Policy Outlook
- Rate Cut Likely, but Caution Ahead: A 25 bps cut to 2% is expected, but further cuts are now in question.
- Neutral Rate Near: The ECB’s estimated neutral range (1.75%–2.25%) may soon limit policy easing.
- Data vs. Trade: New growth and inflation forecasts will shape ECB guidance amid trade headwinds.
US Macro Outlook
- Soft vs. Hard Data: Sentiment remains fragile, but hard data has held up so far; will that last?
- Data-Heavy Week: ISM, JOLTS (Tuesday), ADP (Wednesday), and NFP (Friday) could shift market views.
- Fed’s Key Focus: Unemployment (expected steady at 4.2%) remains the main driver of Fed policy.
Transcript (AI Generated)
Matt Jones
Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.
My name is Matt, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
So after a couple of weeks where trade and tariff headlines have been the dominant driver of sentiment and positioning, this week looks set to bring the focus back to the macro data and central banks. So let's start with the global data. How are we thinking about global macro next week?
Neil Staines
Thanks, Matt. As you say, the dominant focus for the past two weeks has been on trade and tariff developments as well as the budget and fiscal sustainability debates in the US. Everything from a 50% EU tariff one week to a US trade court objection to any tariffs under presidential decree using IEPA emergency powers the next. Indeed, this week, some of that focus shifted towards the Section 899 provisions in the US budget bill that essentially could facilitate retaliatory taxes on foreign entities, and that’s something that the EU is deemed to be particularly vulnerable to. So, lots of complication and confusion and uncertainty surrounding that trade. Essentially, this provides a backdrop of acute uncertainty for the global economy and for markets. However, set against that, next week we get data prints that may potentially offer some clarity on the underlying trajectory of the global economy.
Of particular note, we'll be watching China PMI data. Now we get some of that for May on Saturday, as well as on Tuesday and Thursday from that private sector announcement. And we also get the global final readings for the May PMI—and that's on Monday for manufacturing and Wednesday for the service sector. Eurozone CPI for May, that’s the provisional reading, is on Tuesday. And retail sales will be very closely watched as a barometer of Eurozone economic activity.
Elsewhere, we get Aussie Q1 GDP and Japan household spending. Both of those are on the radar for markets and the respective central banks. So overall, plenty of data and in some respects a welcome distraction from the political uncertainties that have dominated thus far.
Matt Jones
And of course, next week is also the ECB meeting. So how are we thinking about the ECB policy evolution as well as the messaging from the Governing Council?
Neil Staines
Absolutely, yes. Another big week for the ECB, where markets expect a cut of 25 basis points to the deposit rate, down to 2%. In what would be the eighth cut, seventh consecutive cut from the ECB. However, now that rates would essentially be at most estimates of the neutral rate.
The ECB published earlier this year its estimate of the neutral range being from 1.75 to 2.25, then the case for cutting rates further becomes a little bit more complex. In a nod to this, the ECB dropped the reference to rates being “restrictive” at the April meeting.
And commentary, especially from the more conservative north on the Governing Council, has been suggestive of a pause from here. Now, we in the markets will be watching very closely for the updated growth and inflation forecasts—the first since the heightened uncertainty around the tariffs in early April.
After better-than-expected growth in Q1, warnings of a softening of the data are likely to feature in the ECB projections. But against the ongoing trade uncertainty, this evolution and the ECB reaction function are going to be critical for EU growth going forward. Now, markets have just over one more rate cut priced after next week by the end of the year. And all eyes will be on Christine Lagarde and the ECB on Thursday in assessing the balance of risks to growth, inflation, and monetary policy through the course of 2025.
Matt Jones
And it's a huge week for US data. So what are we watching out for and what are the macro implications?
Neil Staines
Absolutely. It really is a huge week for the US. For many weeks now, there has been an active debate about the economic trajectory of the US, as the soft data and sentiment indicators collapsed on tariff uncertainty, albeit with a modest recovery since, but the hard data has until now remained resilient.
Now, whether that’s a function of front-loading ahead of tariffs or just a more resilient consumer, the big question is: will the hard data catch down to sentiment, or will sentiment bounce back to support the hard data and that more constructive underlying economic narrative? Next week, we get manufacturing and services ISM, both on the soft data side, and the all-important employment data: JOLTS on Tuesday, ADP on Wednesday, and non-farm payrolls on Friday. To wrap that up, central expectations on payrolls are for around 130,000 headline gain, with the unemployment rate to remain unchanged at 4.2%.
Now, our analysis suggests that the unemployment rate is the single variable that has the biggest impact on the Fed reaction function. And with markets having rallied strongly from the tariff fear lows, the data likely has to beat in order to sustain current levels in risk assets.
Indeed, when we look at markets over the past couple of weeks, the dollar, bonds, and equities have been relatively flat, likely in some form of a holding pattern ahead of this data verification that we and the markets are looking for next week. So it’s a huge week for the soft and hard data in the US, a huge week for the dollar and for US markets, and, against that, continued commentary on trade and tariffs is likely to keep participants on their toes while we wait.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next time.
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