Week Ahead
Ongoing geopolitical tensions, the ECB rate decision and US inflation data will dominate market attention this week. German factory orders kick off the economic calendar today, while Tuesday brings Chinese trade data alongside US trade figures and existing home sales. On Wednesday, investors will digest Chinese CPI and PPI releases before attention shifts to the US, where CPI and mortgage application data are due. Headline US CPI is expected to rise 4.2%yoy, with core inflation forecast at 2.9%.
The ECB is widely expected to raise its deposit rate to 2.25% on Thursday as policymakers continue to navigate elevated inflationary pressures driven by ongoing geopolitical tensions and higher energy costs. Markets will closely scrutinise President Lagarde’s press conference for guidance on the future path of monetary policy. US producer prices and initial jobless claims will also be released on Thursday. The week concludes with inflation data from France, Germany and Spain, alongside UK GDP and industrial production figures, before the University of Michigan consumer sentiment survey rounds out the calendar.
Last week, markets were largely shaped by a rotation away from technology stocks and investor reactions to a stronger-than-expected US labour market. The S&P Index fell 2.59% over the week as capital flowed towards more defensive sectors, including healthcare and financials. The May non-farm payrolls report showed the US economy added 172,000 jobs, nearly double the consensus estimate, leading markets to price higher expectations of tightening. Treasury yields moved sharply higher, with the 10-year yield rising 9bps to 4.53%, while the 2-year yield up 14bps to 4.15%. Commodity markets also remained volatile. Brent crude gained 1.13% over the week to close at $93.09pb, supported by ongoing geopolitical tensions and resilient demand expectations.
The US unemployment rate held steady at 4.3% for a third consecutive month, while labour force participation remained unchanged at 61.8%. The unemployment rate continues to track only modestly below the Fed's 2026 projection of 4.4%. Wage growth remained broadly contained, with average hourly earnings rising 0.3%mom and 3.4%yoy. While current wage growth appears broadly consistent with productivity gains and is not yet generating significant inflationary pressure, it remains an important indicator to monitor given its implications for both inflation and consumer spending.
Elsewhere, the People's Bank of China (PBOC) reduced its daily liquidity injections to zero for the first time in almost two years. Markets interpreted the move as a signal that policymakers would prefer commercial banks to deploy excess liquidity into the real economy rather than rely on central bank funding. This comes despite the seven-day repo rate continuing to trade below the official policy rate. Meanwhile, China’s Ministry of Commerce announced plans for over 100 global promotional events to boost imports throughout 2026. The renminbi remained broadly stable against major currencies, reflecting policymakers' continued emphasis on exchange-rate stability amid subdued domestic demand and ongoing regional geopolitical uncertainties.
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