This week features important economic updates from the eurozone, UK, and US. **Monday:** Eurozone’s Manufacturing and Services PMIs show a slight increase, with manufacturing expected at 49.7 and services at a neutral 50.2. The latest ZEW survey suggests improved economic sentiment, increasing hopes that fiscal policies may support growth. **Tuesday:** Canada will release its May inflation data, which could influence future monetary policy as concerns grow over ongoing inflation due to global trade issues. Bank of Canada Governor Macklem suggested that rate cuts might happen if trade tensions persist.

Bank of Japan and Australia’s May CPI Data

**Wednesday:** The Bank of Japan held interest rates steady during its June meeting but changed the pace of JGB purchases. Opinions on tapering varied. Australia’s May CPI data is also coming out, following an April rate of 2.4% year-on-year, which was within target expectations. **Friday:** Tokyo’s June CPI will provide early signs of national inflation trends. The Bank of Japan believes inflationary pressures will ease over time, even though wage increases and import prices are currently sustaining them. Additionally, US PCE data will be released after less-than-stellar CPI and PPI results. Core PCE growth is anticipated at 0.13% month-on-month, indicating a decelerating inflation trend. For those monitoring macroeconomic trends and their effects on interest rates and volatility, this week is crucial. Not every release has the same impact, but together, they can alter rate curves and volatility perceptions in ways that might not be fully reflected beforehand.

Eurozone PMI Data and Macro Sentiment

Monday’s PMI results didn’t create a clear sentiment shift. Manufacturing stayed just below the expansion line, while services remained around neutral. This signals a persistent stagnation in the eurozone. Private sector confidence hasn’t worsened, but it isn’t growing strongly either. While improving ZEW results hinted at a possible positive shift, real activity needs to rise for meaningful changes in rate curves. Being overly optimistic about a euro-area bounce-back seems premature. As we move to Tuesday, the focus shifts to Canada. Canada’s inflation situation remains stubborn, with the market looking to policymakers for guidance rather than solely data. The upcoming inflation numbers will only matter if they align with existing narratives. If May’s numbers surprise on the low side, it would align with dovish hints from Macklem. However, a sustained trend below 2.5% would likely be necessary for rate adjustments to be seriously considered. Short-term volatility could drop after the release, so those managing gamma-heavy portfolios may want to reconsider their positions. On Wednesday, the Bank of Japan kept rates unchanged, which was expected, but the adjustment in JGB purchases sparked conversation. Discussion over how quickly to reduce bond support shows that consensus is still developing. Consequently, minor sentiment changes could impact front-end JGB prices. Derivatives linked to swap spreads and futures may remain volatile until more clarity emerges. Caution is advised due to uneven liquidity. On the same day, Australia’s CPI update arrived without strong analyst predictions. April’s figure of 2.4% is comfortably within the central bank’s target, although service sector inflation hasn’t decreased enough to signal victory. For those monitoring when the next policy move might occur, any upward surprise in data, especially from services, could push against rate cuts. Fixed income products sensitive to the Reserve Bank of Australia’s timing could react strongly to any deviation in May’s print. Looking to Friday, Tokyo’s inflation figures will provide early insights into national trends. This data usually precedes official countrywide numbers and is closely monitored. The central bank expects some inflationary pressures to fade, even if current wages and import costs are high. If Tokyo’s numbers exceed forecasts again, it may strengthen calls for eventual tightening, impacting JPY rates. Finally, we turn back to the US, where PCE inflation data, especially the core reading, could either reinforce or contradict the subdued CPI and PPI signals from earlier this month. Expectations point to a modest increase of 0.13% month-on-month, and anything higher could renew discussions that price pressures are not receding. If the data is confirmed as weak, the Fed may find further justification for a slow rate adjustment, which would impact future market volatility and steepeners. However, even in a soft scenario, details within services inflation will matter. For swap traders and those building conditional curve positions, these intricacies might be just as important as the overall monthly figures. In summary, pay attention to the details. Price movements aren’t just about direction—they also involve timing and sequence. Create your live VT Markets account and start trading now.

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