Macroeconomics: The Week Ahead: 7-11 July 2025

The Week Ahead – Preview: 

The new week is rather light on major data, has finely balanced rate decisions in Australia and Zealand and the June FOMC minutes. But the focus following last week’s passage of the US Tax & Spending Bill (which will only serve to maintain the debate on US’ fiscal trajectory) inevitably turns to the US ‘reciprocal’ tariffs deadline on Wednesday. Statistically there are China’s CPI, PPI and credit aggregates, UK monthly GDP and activity data, German Industrial Production and Trade, Japan wages and PPI, Canada’s labour report along with inflation readings in Sweden, Brazil and Mexico. Energy Markets have another larger than expected OPEC+ August production increase to mull over, along with the OPEC annual International Seminar and monthly oil market reports from the EIA and IEA, while agricultural markets look to the USDA’s WASDE and China’s CASDE reports. On the political front, the BRICS summit concludes in Rio, and its statement is set to voice serious concerns about trade tariffs, the conduct of conflicts in the Middle East, and the intended rises in Defence Spending – putting the group at odds with many US administration policies, though without singling out the US specifically. In that context Israel PM Netanyahu is set to meet with US President Trump, as mediators hold talks on a ceasefire in Gaza, while UK hosts the latest Franco-British Summit, though this will not distract from major questions being asked about the Labour government’s credibility, above all in fiscal terms. Earnings are seasonally light with the US Q2 earnings season officially kicking off the next week, but a number of major energy companies (Shell, Galp, OMV & Repsol) will publish Q2 production and activity updates.

** USA: Statistically there are the US NFIB Small Business Optimism, where the consensus looks for a barely changed 98.7, though the already published Employment indices saw a small improvement, and the survey will not capture reaction to the passage of the budget bill. The ‘Expect better economy’ sub-index that plummeted from 52 in December to 15 in April, but rebounded to 25 in May will likely be the key element. The NY Fed’s 1-yr Inflation Expectations will also attract attention, after rising from 3.0% in December to 3.63% in April, the question is whether it decreases further after dropping back to 3.2% in May. As for the tariffs deadline, the US administration has said there are deals with 10 major trading partner expected to be finalized (though subject thereafter to the President’s approval. Media reports suggest that the EU, India, Indonesia, Pakistan and Taiwan are in that group, while Japan is not, if Trump’s recent criticism is anything to go by, though this might have been of the ‘maximum pressure’ variety. There may be some extensions for those negotiating in so-called good faith, but overall tariff levels will rise from the current average of 13%, perhaps as high as 20% if all were introduced. Per se the Fed will deem their ‘wait and see stance’ as being vindicated, particularly with last week’s labour data reinforcing the view that while labour demand (above all in the private sector) is ebbing, it does not for the time being imply a sharper rise in Unemployment. The president’s penchant for being unpredictable advises against taking any announcements as being set in stone, and markets will inevitably be wary of being whipsawed yet again. That said, with equity and credit valuations at lofty levels, and asset allocations (above all retail) to the tech sector looking imbalanced and skewed, there are underlying vulnerabilities.

** China: Both CPI (-0.1% y/y) and PPI (-3.2% y/y) are seen little changed, leaving PPI in negative territory for a 33rd month, and with a race to the bottom still ongoing for many consumer goods (most notably autos, household goods and furniture), the risks on CPI are to the downside of the consensus. Credit aggregates always see a boost in the final month of the quarter as banks typically pick up loan issuance, with New Yuan Loans seen up CNY 2.04 Trln and Aggregate Financing expected to jump to CNY 3.80 Trln, with the cut in Reserve Requirement Ratios also likely to have given a boost. However, the overall profile is likely to remain one of weak consumer loan demand, above all for mortgages, and any boost to corporate borrowing more likely to be defensive in many cases given headwinds from trade tensions.

** UK: GDP data has been volatile, with April’s unexpectedly quite sharp -0.3% m/m largely a payback for Q1 strength on the back of front-loaded manufacturing output to try and beat tariffs, as well as start of fiscal year increases in taxes and other levies (stamp duty). A tepid 0.1% m/m rebound seen for both GDP and the Index of Services (prior -0.4% m/m), with Industrial Production seen flat m/m, while Construction Output is forecast to post a further 0.4% m/m rise following April’s 0.9% m/m. The Visible Trade deficit is also expected to narrow modestly to £-20.9 bln after ballooning out to £-23.2 Bln in April and will remain subject to tariff induced volatility in metals (precious, copper) and autos. Given the array of uncertainties and a now well documented lack of fiscal headroom, growth is likely to remain sluggish for most of the rest of the year.

** Japan: The spring wage settlements are likely to have helped nominal Labour Cash Earnings to 2.4% y/y from 2.0%, but thanks to the still very elevated level of CPI, real earnings are forecast to remain negative at -1.7% y/y vs. prior -2.0%, which neatly encapsulates the BoJ’s policy dilemma. Some better news is expected for the Services sector, with the Economy Watchers survey seen building on May’s rebound with a rise to 45.0 (current) and 45.3 (outlook), though still remaining way below the December levels of 49.0 and 49.4. But the bigger immediate questions are what happens to the US trade negotiations, which are above all proving sticks on autos and agri-food, and the outcome of the Upper House elections this month.

** OPEC+/Energy: The decision to hike August production by 548K bpd against an anticipated 411K confirms that OPEC+ is very much focussed on regaining market share, and willing to take the risk that crude prices will fall further. Of the original 2.1 Mln bpd production cuts, there are just 280K bpd left. One might observe that the tactic of attempting to strong arm those countries that have consistently exceeded production quotas (Kazakhstan, Iraq and Russia) has clearly failed, and per se a change of tactics was inevitable to preserve some cohesion, if other countries were not to follow Angola in leaving the group. While inventories in a a number of OECD regions are historically low, this largely reflects expected weak demand and refining output, inventories in the non-OECD continue to build. In that respect it will be interesting to the extent of any further revisions to the IEA’s estimates that crude inventories will rise an average 720K bpd this year and 930K next year when it publishes its monthly report this week. Some will inevitably point to pressure from the US administration for lower oil prices as being a driver of this change in tactics, but that is likely to be a very secondary if not tertiary consideration. It should also be borne in mind that a number of GCC countries (Saudi Arabia, UAE, Kuwait) have rapidly increased their refining capacity over the past 5 years, and with refining margins at attractive levels (even diesel), this will at least temporarily provide some offset to weaker crude prices, even though budgets will remain strained. Inevitably that budget strain and the high costs of ambitious govt led projects to develop and expand their non-oil sectors to more seriously consider introducing income tax (in most cases likely at a low 9-10%) to mitigate the over-reliance on oil revenues. On the other side of the equation, lower oil prices should offer some relief from high input costs and latterly trade tensions for key sectors such as agri-food (above all fertilizers), logistics, pharmaceuticals, paper and packaging and autos. It should alleviate some inflation concerns for central banks, though the ECB may well view it as skewing the risks of inflation undershooting its 2.0% target, which a number of typically more hawkish council members have note in recent weeks.

– There are just three S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Aeon, Delta Air Lines, DNB Bank, Fast Retailing, Kongsberg Gruppen, Qatar National Bank, Seven & I, Tata Consultancy Services.