The Global Week Ahead: The Mother’s Day Tax Shows Nothing is Sacrosanct

Next Week's Risk Dashboard

• Trade negotiations to intensify...
• …amid several reasons to set low expectations
• US CPI may offer a glimpse at inflationary tariff pressures
• Powell kicks off the Fed’s Framework Review Conference
• Banxico expected to cut again
• Carney to announce Canada’s finance minister
• Ontario closes out Canada’s provincial budget season
• US retail sales may struggle to stay afloat
• US factory output may continue growing, for now
• Australia’s job market faces another test
• China, India to refresh inflation figures
• UK macro dump
• Global macro

Chart of the Week

Markets are keenly focused upon the state of trade negotiations and that may be this week’s focus. It will otherwise be a light week. The main event will be US CPI, and yet not even that is going to settle much at all since it’s for April and hence before peak tariff nonsense began to be implemented in early May. We’ll only hear from one central bank—Mexico’s—plus the Federal Reserve’s conference that intensifies the path to a refreshed framework by late summer. The rest of the data docket is comparatively mild to other weeks but contains a few gems. We’ll also find out the size, scope and names of Canadian PM Carney’s new cabinet. Plus Ontario wraps up Canada’s provincial budget season.

The US administration is reportedly developing a list of prioritized countries for trade talks. The full list is unavailable, but Treasury Secretary Bessent has indicated it includes 18 countries such as China, Japan and South Korea, plus less consequential ones like Fiji, Vietnam and Lesotho. Canada and Mexico appear to be notably absent from the list which defies the relative importance of the two countries to the US trading relationship (charts 1, 2). 

It's unclear what may result from these talks, but there is strong reason for skepticism. Consider three points.

One is that when asked during his Oval Office meeting with PM Carney if Canada can offer anything to reduce tariffs on Canadian goods, Trump said “No. Just the way it is.”

Two is that the US deal with the UK revealed further information on the US stance. It is no template for trade liberalization with others and offered relatively minor changes instead of the ‘comprehensive’ trade agreement that Trump said it was. The UK still faces a 10% reciprocal tariff. Trump has stated that other countries will face higher than 10% minimum tariffs but then said at the end of this past week that a starting 10% baseline tariff will always exist for countries possibly with some exceptions. Instead of a tariff rate of about 27% on vehicle exports to the US, the UK faces a 10% tariff plus an export quota cap set at 100,000 vehicles that essentially kills off growth in UK vehicle exports to the US and eliminates any chance at returning to the glory years (chart 3). Export quotas are also applied against tariff-free beef. Dropping tariffs on British steel is largely irrelevant given the small role played in the US imports market (chart 4). The deal is temporary for a year, and a detailed framework is unavailable. 

Three is that Bessent and Chinese Vice Premier He Lifeng will meet in Geneva on Saturday to commence exploratory talks amid a slew of highly conflicting remarks. Anonymous US officials stated through the press that the US would offer to drop tariffs on Chinese imports to 60% or lower from 145% at present, only for Trump to come out hours later and say 80% was the figure. China has repeatedly stated it will not negotiate until the US eliminates all tariffs which the US administration has said it will not do. Tariffs at anywhere close to any of those levels effectively grind commerce to a halt between the two nations as it’s not economical to supply.

Fourth, nothing is sacrosanct and able to avoid tariffs! Not even moms! On Mother’s Day no less! Jay Parmar’s chart of the week on the cover page shows average Mother’s Day spending. Chart 5 shows that tariffs on flowers will raise prices and principally affect exporters like Colombia. 

In other words, don’t hold your breath on meaningful trade deals versus market optimism being pumped by the Trump administration that they could be around the corner. With that assumption, key is what will be rapidly emerging evidence of the damage to the economy, jobs, supply chains, product shortages —and prices. On the latter note, the next section will offer a gentle segue toward bigger price pressures that lie ahead.

US INFLATION—THE LAST STALE READING

The last of the stale CPI prints arrives on Tuesday. It will be stale because the data covers April and while there were some tariffs imposed during April, most took effect in May and will show up in the next report on June 11^th. At best, we may see a glimmer of the earliest effects of tariffs.

I’ve estimated a rise of 0.3% m/m SA for total CPI and also for core CPI excluding the more volatile food and energy components. We’ll have a decent idea of what to expect for the Federal Reserve’s preferred PCE inflation figures due out on May 30^th after adjusting for weight differences between CPI and PCE and after incorporating the components within the producer price index that will be updated on Thursday.

One driver is that the seasonal adjustment factors are likely to extend the recency bias reflected in chart 6 that overstates core inflation in months of April in recent years.

Shelter has about a 35% weight in CPI of which owners’ equivalent rent accounts for about 26% of CPI and rent of primary residence is another 7½% with the residual made up by categories like school boarding, hotels and motels plus home insurance. I’m expecting primary rent to be up by 0.3% m/m again with OER also up 0.3%. These categories combined should add about 0.1% m/m SA to CPI on a weighted basis and very slightly more to core CPI. Waning market rents should show up more significantly over the duration of this year into 2026 (chart 7).

Vehicle prices should be a minimal net effect on CPI this time. That’s because a mild seasonally adjusted rise in industry guidance for vehicle prices is expected to be largely offset by a mild seasonally adjusted dip in used vehicle prices. This effect is likely to become more balanced going forward as tariffs buoy new vehicle prices and spark substitution toward used vehicles that could raise their prices in a similar manner to what happened in the pandemic (chart 8).

Gasoline and food prices should play trivial roles.

An upside risk is core services CPI that excludes housing and energy services. Core service prices posted the first drop (-0.2% m/m SA) in March since last May and those are the only two declines in almost four years.

What may be more uncertain is the 19% weight on core goods prices that remove food and energy commodities. They fell -0.1% m/m in March for the first time this year but this category has been highly volatile. This is the category that may show tariffs effects most directly outside of vehicles. That, in turn, is a big wildcard in this and subsequent reports.

As much as we can estimate the surge in the average effective tariff rate on US imports due to policy shifts (chart 9), translating that into expectations for inflation is fraught with difficulty—especially in the near-term. Pass through effects could be delayed by selling down inventories at older prices particularly after retailers have been restocking over the past year (chart 10), some absorption in still wide profit margins (chart 11), and the fact it takes weeks to months for supply chains to begin resetting prices and sparking widespread product shortages. 

A tariff hit to prices is coming, however, as survey after survey indicates high pass through and an economy in excess demand gives businesses significant pricing power.

CENTRAL BANKS—BANXICO AND THE FED’S FRAMEWORK REVIEW

The lone central bank to weigh in with a decision this week will be Mexico’s. Chair Powell will lead several FOMC officials out of blackout.

Banxico—Another 50?

Consensus unanimously expects Banxico to cut 50bps on Thursday.

The prior decision and statement on March 27^th teed up this expectation by noting the following:

“The Board estimates that looking ahead it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.”

Banxico has cut by 50bps in each of its two prior decisions before which it delivered four 25bps rate cuts in a row. The peso has appreciated by about 4% to the dollar since the last decision and within a general environment of broadly based USD weakness.

Powell Kicks Off Framework Review Conference

Federal Reserve speak heats up again this week as varying opinions are elaborated upon following the recent decision (recap here). Chair Powell speaks on the framework review on Thursday (8:40amET) in a text-only event at the May 15^th–16^th research conference that includes outside speakers and panelists (agenda here). He has guided that the review is to be completed by late summer and that lessons since the last review in 2020 would be instructive.

They have already stated that the 2% inflation goal “is not a focus of the review.” The focus will be upon the FOMC’s Statement on Longer-Run Goals and Monetary Policy Strategy (here), and communication tools. No major changes to the review are likely.

GLOBAL MACRO—SIX KEY DEVELOPMENTS

The rest of the global line-up will focus upon a limited subset of key developments. Chart 12 summarizes the rest of the indicator line-up.

Tuesday and Thursday will be the biggest days with the main focal points as follows.

Canada’s cabinet: PM Carney pledged to announce his cabinet on Tuesday, one day later than previously guided but generally on track. One of the key posts will be Finance Minister. Carney has not pledged to retain François-Philippe Champagne as FinMin but that doesn’t rule him out. There are several other candidates including a former colleague, Carlos Leitao who was credited with playing a role in improving Quebec’s finances as its Finance Minister.

US retail sales: Thursday’s retail sales could struggle to stay afloat after rising by 1.5% m/m in March. Auto sales remained high but dipped by just under 3% m/m SA. Key will be the core and control group measures that are expected to remain resilient.

US industrial output: Thursday also brings out IP for April. A mild rebound is expected from the -0.3% m/m drop in March. That previous drop was focused upon utilities (-5.8% m/m SA) but manufacturing continued to grow and may keep growing in April ahead of the fuller impact of tariffs on supply chains going forward.

Australia’s job market: Tuesday’s Q1 wage growth figures will be closely watched to see if the pattern of gradually cooling quarter-over-quarter readings continues. April’s tally for job growth on Thursday will further inform whether March’s rebound (+32k) has legs to it following the decline of nearly double that in February.

CPI from China and India: April’s Indian CPI reading could continue slowing (3.3% y/y in March) from the recent peak of 6.2% in October. Tensions with Pakistan are likely to divert most attention away from the reading. China updates CPI for April shortly after this report’s release.

UK macro dump: A whole mess of key UK activity readings will be released on two days. On Tuesday, payrolls will be monitored for continued decline in April (chart 13) with wage growth expected to remain elevated. On Thursday, Q1 GDP growth is expected to accelerate from almost no growth the prior quarter with consumption leading the way. Also on Thursday will be readings for March retail sales, industrial output, construction spending, services activity and trade figures that will inform how the math is handing off to Q2 momentum when tariff uncertainties begin to bite.

ONTARIO CLOSES OUT PROVINCIAL BUDGET SEASON

On Thursday, Ontario will release its 2025–26 budget. It will be the last one in this year’s provincial budget season. Mitch Villeneuve shares his thoughts.

While the government’s 2024 fall economic outlook had forecast the deficit to shrink from $6.6 bn in FY25 to $1.5 bn in FY26 and turn into a small surplus in FY27, the provincial government is likely to downgrade its fiscal outlook in this budget. We expect lower revenues from the deteriorated economic outlook, higher contingency buffers to reflect elevated risks, and new measures to respond to the tariff impacts (including the manufacturing tax credit announced by the government this week). Our latest economic growth forecast for Ontario (chart 14) implies a revenue downgrade for FY27 of around $3 billion, but the published fiscal outlook will depend on the assumed tariff war impacts on the Ontario economy, as well as the discretionary response from the province.