In developed markets, US inflation takes center stage. Inflation has been steady recently, with monthly increases of 0.1% and 0.2%. However, I expect it would take about three months after the tariffs for their effects to appear. This means the July, August, and September CPI reports will likely show a bigger impact. There is a possibility that core CPI will rise in Tuesday’s report and may be worth monitoring.
Looking at the Euro Area, we have a few data releases to pay attention to.
The Euro Area saw strong growth in production and exports in the first quarter, driven by frontloading before “Liberation Day,” April saw declines as those effects faded. However, industrial production in April was still higher than in January.
While new orders show signs of stabilizing, it seems April’s production levels were still boosted by frontloading. The key question is whether the tariff pause caused another wave of frontloading or if production and exports have returned to normal or even dropped due to higher tariffs.
May data will be crucial in understanding this and will provide a clearer picture of second-quarter GDP trends.
Moving to the UK, we have both jobs and inflation data on deck next week.
On the inflation front all eyes will be on UK service inflation which is expected to drop further, likely giving the Bank of England confidence to cut rates again in August. There will be even more pressure for a cut after the UK GDP release on Friday.
Job numbers are more important for markets than inflation next week. In May, payrolled employee numbers fell at the fastest rate since 2014 (excluding the pandemic). This data might be revised higher, but if it isn’t and if June’s numbers are also bad, it could push the Bank of England to speed up rate cuts.