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The Week Ahead - 16 - 20 June 2025
These are the Key Macro Events for the upcoming week.
Key views Global Monthly May 2025
The US and China have significantly de-escalated their trade war, bringing bilateral tariffs of 145% (on Chinese exports) and 125% (on US exports) down to 30% and 10% respectively. However, global trade is still likely to slow sharply as the tariffs that remain take their toll, and frontloading effects unwind, while the global economy (especially the US) will be weighed by extreme policy uncertainty. Interest rate cuts and other forms of policy support are a cushioning factor in the eurozone and China, while in the eurozone specifically, defence spending, and in Germany new infrastructure spending will support growth in 2026. Still, the nascent recoveries in domestic demand in the eurozone and China face downside risks from weaker confidence, while in the US, demand will be hit by the tariff impact on real incomes. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. This is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold until 2026, and the ECB continuing to cut rates.
Bank of England – High inflation expectations to keep rate cuts slow and gradual
The Bank of England lowered interest rates today by 25bp, taking Bank Rate to 4.25%, as was widely expected. More surprising was the vote split, with two members voting for a larger 50bp cut, and two others voting for no change at all. We expect the BoE to continue cutting at a quarterly pace for the time being, with Bank Rate to settle at an elevated 3.5% in 2026.
Key views Global Monthly April 25
US tariffs surprised even our pessimistic expectations, and despite the 90 day reprieve for the biggest rises, significant tariffs remain in place. The US has focused chiefly on China, as we had long expected, but the eurozone (and the rest of the world) are still hard hit – by both tariffs and the policy uncertainty. Interest rate cuts and other forms of policy support are a cushioning factor in the eurozone and China, while in the eurozone specifically, defence spending, and in Germany new infrastructure spending will support growth in 2026. Global trade and growth are also initially benefiting from a frontloading of US imports ahead of tariff rises. Still, the nascent recoveries in domestic demand in the eurozone and China face downside risks from weaker confidence, while in the US, demand will be hit by the tariff shock to real incomes. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. This is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold until late 2026, and the ECB continuing to cut rates.
Key views Global Monthly 26 March 2025
US tariff threats have surprised even our pessimistic expectations, with the most important announcement still to come on 2 April. China, the EU and the US’s neighbours are expected to bear the brunt. For the eurozone, a new upside risk comes from likely significant increases in defence spending, and in Germany new infrastructure spending. This will blunt the impact of tariff rises. Global trade and growth are also initially benefiting from a frontloading ahead of tariff rises, but a sharp slowdown is expected later in 2025. Domestic demand is in the meantime recovering in the eurozone and China, helped by falling interest rates, and in China, targeted fiscal measures. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. This is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold from here, and the ECB continuing to cut rates.
Key views Global Monthly 26 February 2025
President Trump’s tariff threats have surprised even our pessimistic expectations. Our base case sees a significant rise in US import tariffs in 2025, but recent threats raise the risk of a more negative scenario. China and the US’s neighbours may bear the brunt, but Europe will also be hit. Global trade and growth will initially benefit from a frontloading ahead of the tariff rises, before slowing sharply later in 2025. Against this backdrop, domestic demand is recovering in the eurozone and China, helped by falling interest rates and targeted fiscal measures in China, while in the US, deregulation and tax cuts will help blunt the real income shock from tariff rises. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. All of this is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold from here, and the ECB deposit rate ultimately falling to 1%. This is expected to push the euro below parity against the dollar in the course of 2025.
Global manufacturing picks up before tariffs may hit
Global manufacturing PMI picks up in January, led by developed markets. Improvements in DMs led by the US, eurozone shows improvement but still lags behind. Improvements both at the supply and the demand side. Input and output price components stay well below ‘pandemic peaks’.
Bank of England – Less dovish than meets the eye
The Bank of England lowered interest rates yesterday by 25bp, taking Bank Rate to 4.5%, as was widely expected. Much more surprising was the vote split, with a seeming about-turn from long-time hawk Catherine Mann, who joined long-time dove Swati Dhingra in voting for a 50bp cut (the vote was 7-2 in favour of 25bp). We expect the BoE to continue cutting at a quarterly pace for the time being, but for Bank Rate to settle at an elevated 3.5% in 2026.
The Week Ahead - 3 - 7 February 2025
These are the Key Macro Events for the upcoming week.
Key views Global Monthly 22 January 2025
The return of president Trump to the White House is likely to mean a significant rise in US import tariffs in 2025. China will bear the brunt, but Europe will also be hit. Global trade and growth will initially benefit from a frontloading ahead of the tariff rises, before slowing sharply later in 2025. Against this backdrop, domestic demand is recovering in the eurozone and China, helped by falling interest rates and targeted fiscal measures in China, while in the US, deregulation and tax cuts will help blunt the real income shock from tariff rises. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. All of this is likely to drive a divergence in Fed & ECB policy, with slower and fewer Fed rate cuts, and the ECB deposit rate ultimately falling to 1%. This is expected to push the euro below parity against the dollar in the course of 2025.