THINK Ahead: US jobs in spotlight in holiday-shortened week

United States (James Knightley)

Rate Expectations: In a 4 July holiday-shortened week, Thursday is the key day for data. Financial markets are increasingly pricing in the prospect that the Federal Reserve will lower interest rates earlier and more aggressively than thought if trade tensions continue to de-escalate. Having been stuck around 50bp of cuts in the second half, with 25bp cuts favoured in September and December, we are now getting close to a 50% probability of a third 25bp cut before the year is out. Two Fed officials, Kevin Warsh and Michelle Bowman, are suggesting they could potentially vote for a rate cut in July, but most other officials are more conservative and state that they want to make sure that the price impact of tariffs is only a short term phenomenon and doesn’t lead to a more permanent increase in inflation.

Employment (Thu): However, we need to remember that the Fed has a dual mandate in that they target inflation at 2%, just like most other central banks, but also are obliged to maximise employment. Next week’s jobs numbers are expected to hold up reasonably well, with around 100k jobs added. But, lead indicators, such as business employment surveys, job vacancy numbers, and rising jobless claims suggest that July through to September is a critical period that could see much softer data. If that is the case, then rather than wait until the fourth quarter and cut interest rates by 50bp as we are currently forecasting, the Fed may choose to cut rates in September and follow up with additional cuts in October and December.

Eurozone (Bert Colijn)

Inflation (Tue): Price growth in the eurozone has been very benign in recent months, which has prompted the European Central Bank to lower rates to 2%. Expectations are that inflation will continue to hover around 2% for the months ahead on the back of sluggish economic activity. For June though, higher oil prices have translated into a slight tick up in prices at the pump. The latest services inflation data from May were also disproportionately weak, so a slight increase seems to be in the making.

Unemployment (Wed): Unemployment continues to trend at record lows for the moment despite weakness in northern eurozone labour markets. The south is picking up the slack with declining unemployment in Spain, Italy, Greece and Portugal. Expect continued strong labour demand in the south to keep unemployment rates in the low 6% range despite softness in northern eurozone markets.

Poland (Mateusz Sutowicz)

MPC Meeting (Wed): On Wednesday (2 July) the Monetary Policy Council will end its two-day meeting. In our view, interest rates will stay on hold, even as the MPC has substantial room for monetary easing due to the expected fall in inflation towards the 2.5% target by the end of next year. We expect that the majority of rate setters may be willing to wait for more information on the scale of the inflation decline over the summer months (despite the fresh central bank macro-projection in July) and fiscal outlook for 2026. Our baseline scenario leans towards a September cut, when the draft 2026 state budget will be known. Nevertheless, it is still going to be a close call between July or September as there is no decision in August. By the end of 2025, the main policy rate may fall by 50bp in total to 4.75%. The monetary easing cycle should be continued in 2026 with the target rate at 4.25%.

Hungary (Peter Virovacz)

Industry (Fri): We believe that the most important data release in the coming week will be the May industrial production figures, as the Hungarian macro calendar largely revolves around manufacturing. Following an unexpectedly strong April, we anticipate a downward correction in production levels based on various soft indicators. However, due to the base effect, the raw year-on-year figure will show improvement; yet production volumes will remain around 6% below the 2021 monthly average. Furthermore, hopes of a strong revival have just been dashed with CATL suspending the second phase of its Hungarian battery plant investment and admitting that only one-third of the originally planned capacity will be built.

Czech Republic (David Havrlant)

PMI & Sales (Tue-Thu): The Industrial PMI likely improved in June but remained in the contraction zone, as European demand remained tepid overall after receiving a boost from previous front-loading linked to tariffs. Real retail sales are likely to have continued robust annual growth in May, as households carried on spending their solid income gains. The demand-driven recovery contributed to a pickup in inflation in June, bringing it close to the upper bound threshold of the inflation target. Imputed rents and food prices represent an upward risk, while electricity prices are a downward risk to the overall price dynamic.

Turkey (Muhammet Mercan)

Inflation (Thu): After the spike in recent weeks, oil prices erased gains following the ceasefire and de-escalation in the Israel-Iran conflict. With the improving oil price outlook, a benign FX pass-through on core items and ongoing slowdown in economic activity, we expect June inflation to come in at 1.5% (35.3% on an annual basis vs 35.4% a month ago) and to remain below 30% at the end of this year. This backdrop should be supportive for the MPC to start gradual rate cuts in July, in our view.