Archive

Canada: Policy Rate Held At 2.75% (Consensus 2.75%) in Jun-25

• The Bank of Canada held its policy rate at 2.75%, as expected, but disappointed market participants who anticipated a dovish signal or rate cut, reflecting a cautious, data-dependent stance.
• Firmer-than-expected core inflation and persistent tariff-related cost pressures have offset the disinflationary effects of a softening domestic economy, prompting the Bank to be vague and non-committal about the potential for further rate cuts.
• The interest rate outlook remains highly uncertain, with future policy decisions hinging on the evolution of inflation, domestic demand, and the unpredictable trajectory of US trade policy.

EA: May Be Disinflation’s Return

• Negative payback in services inflation dragged the headline EA rate down to 1.92% in the May flash. Although only 7bps low on the day, releases last week had cut 0.1pp.
• Inflation now looks set to spend a few months below the target rather than at or even above it, as had seemed likely until recently. This is not because of re-rooted imports.
• Euro appreciation and low energy prices have expanded the ECB’s room to cut rates, but we still see June as the final one amid tight labour markets and peers backing away.

By Philip Rush

HEM: Better Never Than Late

• Companies are smoothing out volatile trade policies
• Activity remains strong and labour markets are tight
• Underlying price and wage inflation is still too high
• Markets expect cuts to resume later, contrary to history
• The risk of rate hikes in 2026 is widely underappreciated

HEW: Macro Hokey Pokey

• Markets danced the Hokey Pokey to a drumbeat of lawfare and whimsical Presidential decrees. Tariffs were in, out, out, in, with tired pricing relatively unchanged overall.
• Underlying GDP trends remain unbroken by the disruptive announcements of recent months, with the superior US productivity performance still internationally enticing.
• Next week’s ECB rate cut remains one of the least uncertain macro stories. However, guidance should be much more hesitant about cutting again, while leaning that way.

By Philip Rush