Weekly Market Preview
Friday, 30th of May 2025
One of the most closely watched events for investors this week is the European Central Bank’s interest rate decision and subsequent press conference. Members of the Governing Council are widely expected to cut interest rates by 25 basis points, from 2.25% to 2.00%. With European inflation hovering near the 2% target, policymakers are in a favourable position to continue easing monetary policy, particularly amid sluggish economic growth in the eurozone. In line with this outlook, markets have already priced in two additional 25 basis point rate cuts later this year.
A key factor that could influence ECB policy in the months ahead is the outcome of trade negotiations between the European Union and the United States. A successful trade agreement would reduce the need for further monetary easing, especially as European governments move to ramp up military spending. Notably, German lawmakers have taken initial steps toward passing a €500 billion bill to boost infrastructure and defence spending. This move is largely driven by growing security concerns following Russia’s invasion of Ukraine and former President Trump’s statements indicating the U.S. may no longer guarantee Europe’s defense.
Meanwhile, traders are also awaiting the release of the U.S. Non-Farm Payroll report for May later this week. The report will provide key data on the labor market, including job creation, the unemployment rate, and average hourly earnings.
Labor market and inflation data remain among the most critical indicators guiding the Federal Reserve’s monetary policy. In May, the U.S. economy is expected to add just 130,000 jobs, down from 177,000 in April, while the unemployment rate is projected to hold steady at 4.2%. If the report beats expectations, the Fed may continue its “wait-and-see” approach, delaying any rate cuts until September to further evaluate the impact of tariffs. Depending on inflation and unemployment trends, the Fed could opt for a 25 or even 50 basis point rate cut at that time. However, if the data disappoints and unemployment rises, pressure will build for the Fed to act sooner, potentially implementing a 50-basis point cut in September or a 25 basis point cut as early as July.
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Friday, 6th of June