The upcoming week features several key events, including the BoC Business Outlook Survey, US NFIB Small Business Optimism Index, and RBNZ Policy Announcement. On Thursday, reports including Japan’s PPI and China’s CPI will be released, followed by UK GDP and US PPI on Friday.
The RBNZ is anticipated to lower the OCR by 25 basis points, aiming for a more gradual approach as they near a neutral rate of around 3.00%. Market expectations have shifted following a recent tariffs announcement, now incorporating potential easing of 93 basis points by year-end.
US Inflation Projections
US CPI figures are projected at 2.6% year-on-year, with Core CPI expected at 3.0%. Fed Chair Powell indicated that the central bank may not rush to cut rates, remaining cautious about inflation expectations.
In the labour market, Initial Claims are forecasted at 223,000, while Continuing Claims are expected to decrease slightly to 1.88 million.
On Friday, US PPI is forecast to rise to 3.3% year-on-year, and the University of Michigan Consumer Sentiment is set to drop to 54.7, reflecting growing concerns over inflation amidst the ongoing trade tensions.
This article sets out a week packed with releases and central bank decisions, each of which could carry an outsized weight in shaping market positioning. The Bank of Canada’s Business Outlook Survey typically informs sentiment on whether Canadian firms expect cost or wage pressures to rise. Any shift in those expectations might ripple into rate speculation, particularly given how finely markets are currently balancing inflation data against potential economic softening.
Small Business Optimism Index
The small business optimism index in the US, though often seen as more mood than metric, has lately begun to prove its worth as an early signal for weakening domestic demand, especially when hiring intentions and sales expectations head south at once. It doesn’t point to immediate rate repercussions, but if confidence wanes further, it feeds the broader picture of a slowing engine. Meanwhile, expected figures for jobless claims remain supportive of a relatively tight labour market, one that’s not yet giving the Federal Reserve much reason to panic, though we notice continuing claims have trended persistently higher since the spring—enough to hint at soft patches forming underneath the headline strength.
The Reserve Bank in New Zealand has been among the more forthcoming in its shift toward policy loosening. A 25 basis point cut looks more likely than not, especially when factoring in recent trade tariffs that have added extra costs and uncertainty. Market participants have had to recalibrate in response, now betting on a full percentage point of easing by the end of the year. It’s important to stress that this isn’t panic-driven policy; the central bank appears to be letting air out slowly, aiming to find a lower but sustainable level for borrowing costs near 3.00%.
In the US, inflation headlines will attract scrutiny again this week. We’re expecting the consumer price index to land around 2.6% over the prior year. The core measure, which strips out food and fuel, remains stickier at 3.0%. This difference helps explain why Powell hasn’t pivoted more aggressively toward cuts—he has made it clear that taming sticky services inflation remains a priority. He appears less concerned with the month-on-month decline than with longer-term expectations becoming unanchored.
Friday’s producer price index, on paper rising to 3.3%, may spark additional discomfort. Input prices climbing can serve as an early harbinger that CPI won’t glide downward smoothly. What’s more, the University of Michigan sentiment number dropping to 54.7 underscores the psychological hit from tariff tensions and persistent price pressures. Consumers may continue to spend, but the mood is darkening—those levels are often associated with periods just prior to economic downturns.
For us, this means near-term volatility should not come as a surprise. A PPI upside surprise combined with weak consumer sentiment could push market-implied rates higher again, especially in shorter maturities. While the slowdown in continuing claims offers some support, it’s not strong enough on its own to justify an outright bullish shift on rate cuts. Equally, hedging against stickier inflation looks increasingly wise if the data outpaces estimates—wider spreads between near and far contracts may emerge in forward curves.
On Thursday, as we receive price data from Japan and China, the focus shifts briefly to Asia. Chinese CPI prints still well below target suggest demand remains soft, despite bouts of stimulus. This won’t move Western rates directly but offers a useful benchmark for how durable global consumption really is. Japanese PPI, if it comes in hotter than expected, could unsettle yen traders anticipating no change from the Bank of Japan.
Finally, UK GDP could re-centre attention on sterling markets, especially if figures show stronger than predicted growth. A surprise there might disrupt current assumptions of policy stasis. We’d be alert for any widening in short-term volatility or shifts in cross-rate movements between pound and dollar funding curves. When markets are thin, small surprises can echo louder than usual.
