The ongoing culling (both planned and implemented) of the federal workforce totals 216k positions thus far with another 75k accepting voluntary buyout offers. This puts more workers into what is already a finely balanced U.S. labor market. The U.S. Federal Government employs 2.4 million workers (excluding U.S. postal service) accounting for 1.9% of the entire U.S. civilian workforce. This could ultimately amount to the biggest job cut in U.S. history. Recently, Judge Susan Illston has issued preliminary injunction that pauses further reductions in force of the federal government. The Trump administration has appealed this decision.
U.S. leading indicators deteriorated as fears over unemployment and inflation expectations mount. Tariff polices remain in constant flux. The 90-days reciprocal tariff reprieve for all countries which expires July 8th did not provide sufficient reassurance for markets as 25% tariff for autos, steel and baseline 10% remained in place. A 30% baseline is applied to China down from 145% earlier.
At the latest meeting, the ECB eased policy for the eight consecutive time lowering policy by 25bps across three key interest rate benchmarks. The ECB earlier downgraded GDP growth outlook to 0.9% for CY25 and projects slightly lower GDP growth for CY26 at 1.1%. The ECB’s asset purchase program (APP) and pandemic emergency purchase program (PEPP) no longer reinvests principal payments from maturing securities. The ECB is on an aggressive easing pivot to bolster meager economic growth amid challenged external demand.
BOE Governor Andrew Bailey has signaled an expedited approach to monetary easing and followed through with a 25bps policy rate cut in February and May to 4.25%. The BOE halved 2025 GDP growth forecast from 1.5% to 0.75%. The BOE is anticipated to cut at policy interest rate at least one more time in 2025. Headline and core CPI rose 3.4% YoY and 3.5% YoY in May driven by services. The BOE expects inflation to move towards 2% overtime.
After the BOJ held policy rate steady at the December meeting, the central bank voted 8-1 to hike policy rate by 25bps to 0.5% in January to a 17-year high. Inflation has persistently hovered above the 2% BOJ’s target. The market is now pricing a full a cycle high of 50bps in total policy tightening for CY25 as surges in food price may drive inflation overshoot. Regardless, the BOJ maintains the optionality to moderate the pace of rate hikes should trade tariff negatively threatens near term growth and inflation outlook. China’s economy ended 2024 on a stronger-than-expected note Q4CY24 GDP expanded by 5.4%YoY followed by stronger than expected 5.4% growth in Q1CY25.
India’s CY24 GDP slowed to 6.5% due mainly to the contraction in government spending after a robust 8.2% growth in 2023. India’s benchmark equity index, remains 4% below all-time-high. Concerns regarding earnings growth and consumption prompted foreign investors to turn net sellers and lock-in gains. Nevertheless, RBI’s 100bps rate cuts over past three consecutive meetings, a projected rise government spending and tax relief for the next fiscal year has sparked optimism.
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