The forthcoming week features two significant central bank meetings, with the European Central Bank (ECB) and Bank of Canada (BoC) both deliberating interest rates decisions that could signal shifting monetary policy stances. Critical employment data dominates the US economic calendar, including Job Openings and Labor Turnover Survey (JOLTS) findings, ADP employment figures, and the closely monitored non-farm payrolls report, providing comprehensive insights into labour market dynamics. China’s Caixin purchasing managers’ index (PMI) releases will offer alternative perspectives on manufacturing and services sector health beyond official government data. As corporate earnings season concludes, technology firms Broadcom and CrowdStrike represent among the final major reports, offering visibility into semiconductor demand and cybersecurity growth trends amid an evolving economic landscape.
The probability of a 25 basis point (bp) cut at the upcoming ECB meeting has increased from 84% in mid-May to 97% this week, reflecting increasingly dovish sentiment following Trump’s threat to increase tariffs on European goods to 50% last week. The June rate decision could mark the seventh consecutive reduction since June 2024, bringing the deposit facility rate to 2%.
Last month, ECB President Christine Lagarde indicated that US tariffs would likely prove more disinflationary than inflationary for Europe, driven by cooling energy prices resulting from slower global growth, US dollar depreciation, and excess supply as global goods are redirected to European markets. December bond futures currently price at 1.67%, indicating another one to two cuts by year-end following the June meeting. Markets will monitor the ECB press conference closely for guidance on future cut timing, as a pause exceeding two meetings could signal an end to accommodative policies.
Figure 4: Europe’s inflation approaches ECB 2% target, allowing rates to go down further