Limit Up! 5th June 2025

Ian Reynolds June 5, 2025

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Overnight

overnight

Economic Indicators Released Overnight

A lot happening overnight as Bank of Canada holds rates steady:

Trade Policy Uncertainty: Recent U.S. tariffs on Canadian steel and aluminium, which have been doubled to 50% by President Donald Trump, have introduced significant unpredictability into trade relations.
Inflation Concerns: While headline inflation decreased to 1.7% in April, primarily due to lower energy prices, core inflation has risen to an average of 3.15%, the highest in nearly a year.
Economic Indicators: The Canadian economy experienced a 2.2% annualised GDP growth in Q1, driven by exports and inventory accumulation ahead of potential U.S. tariffs. However, the central bank anticipates a slowdown in the second quarter.

Governor Tiff Macklem emphasised that while the current rate is being maintained, the Bank of Canada remains open to future rate cuts should economic conditions deteriorate further. The next policy decision is scheduled for July 30, 2025, coinciding with the release of the Monetary Policy Report.

Australian GDP came in lower then expected as the economy stagnates. RBA miles behind the curve as usual.

UK and EU PMIs better than expected.

Market mover was first US ADP coming at 37k, expected 111k - a warning for Nonfarm Payroll on Friday. Then the FED Beige Book [Federal Reserve] reported on economic activity from April to mid-May. The report indicates a slight decline in overall economic activity, with only three of the twelve Federal Reserve Districts reporting growth, a notable decrease from all twelve reporting growth in January.

Key Highlights:

Economic Activity: Nine out of twelve districts reported stagnant or contracting economic activity. Consumer spending decreased, and businesses delayed hiring, contributing to a "flat" labor market.
Trade Policy Uncertainty: Unpredictable tariff policies have led to significant business uncertainty. Many companies are hesitant to invest, expand, or hire due to the ongoing trade policy unpredictability.
Inflation and Pricing: Businesses are raising prices even on products not directly impacted by tariffs. Surveys indicate that around 75% of firms are passing on tariff-related cost increases to customers, suggesting a broader inflationary effect.
Labor Market: Employment levels were generally stable, with some layoffs and attrition without replacement. Wages saw slight increases, and prices across industries rose modestly.