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Inflation data from the US and the UK coupled with preliminary PMI data from the Eurozone and the UK will highlight the week ahead of us. Please be mindful that this is the last trading week of Q1 so volatility can be increased due to rebalancing.
USD
OECD has cut global growth for 2025 and 2026 citing tariffs as the main culprit. Global GDP growth is seen at 3.1%, for 2025 and 3% for 2026, down from 3.3%, for both years, seen in December. US GDP has been revised to 2.2% in 2025 and 1.6% in 2026 from 2.4% and 2.1% respectively. Canada and Mexico saw their GDP numbers plunge with former printing 0.7% growth in both 2025 and 2026 (2% was seen previously for both years) while latter will see its GDP shrink 1.2% in 2025 and 0.6% in 2026.
February retail sales showed rare miss on expectations in headline number (0.2% m/m vs 0.6% m/m as expected) but the real star of the show was control group. The control group measure jumped 1% m/m after dropping by the same amount in January. Control group excludes volatile components and is considered a better measure of consumption in the economy, as such it is used for GDP calculation. Ex autos and ex autos and gas categories also rose on the month with 0.3% m/m and 0.5% m/m increased respectively. The biggest contributor were nonstore retailers (online) with 2.4% m/m increase followed by health & personal care stores with 1.7% m/m. Department stores, food services & drinking places as well as gasoline stores all recorded drops bigger than 1% m/m.
Fed has left key interest rate unchanged at 4.25-4.50% range as was widely expected. They see economy continue to expand at a solid pace with labour market staying solid. Inflation is coming down but remains somewhat elevated. Starting in April the pace of QT will be slowed down “the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion.” Governor Waller dissented as he wished to continue the same pace of run off. New dot plot showed no changes to interest rates as they remain at 3.9% for the end of 2025, 3.4% for the end of 2026 and 3.1% for the end of 2027. Longer-term rate was also left unchanged at 3%. GDP projections have been lowered to 1.7% in 2025 and 1.8% in 2026 from 2.1% and 2% seen in December dot plot. The unemployment rate for 2025 has been lifted to 4.4% form 4.3% seen in December. Inflation numbers were also lifted up and now PCE is expected to end at 2.7% for 2025 vs 2.5% in December while core PCE is seen at 2.8% vs 2.5% at their previous projection in December.
At the press conference Chairman Powell was persistently asked about impact of tariffs on inflation and he characterized it as “transitory”. This is a loaded word as it reminds people of central banks incompetence to properly grasp inflation threat during the pandemic, when they also labelled it as transitory. He dismissed the weakness seen in consumer sentiment and increase seen in consumer inflation expectations. He also emphasized importance of hard data and currently it is giving Fed room to wait with rate cuts. Powell acknowledged apparent moderation in consumer spending but added that wages are growing faster than inflation. Labor is not a source of serious inflation pressures and inflation is expected to reach a 2% target in 2027. Trade, immigration and fiscal policy will see changed by new administration. Uncertainty is unusually elevated and Powell stated that changes in SEP are largely due to trade policy.
The yield on a 10y Treasury started the week at 4.32%, rose to 4.32% and finished the week at around 4.25%. The yield on 2y Treasury started the week at 4.03% and reached the high of 4.04%. Spread between 2y and 10y Treasuries started the week at 33bp and finished the week at 31bp as curve proceeded to flatten. FedWatchTool sees the probability of a 25bp rate cut at May meeting at around 17%, while probability of a no cut is around 83%. June is the first meeting that sees above 50% probability of a rate cut. Gold has settled comfortably above the $3000 level.
This week we will have final reading of Q4 GDP as well as Fed’s preferred inflation measure PCE.
Important news for USD:
Thursday:
GDP
Friday:
PCE
EUR
German parliament voted with a 513 votes majority to implement fiscal stimulus and change to the debt brake. The package is for €500bn infrastructure fund over the next 12 years of which €100bn will be directed towards the Climate Transition Fund, that is what Greens pushed for in exchange for their votes in the parliament, while €300bn will be used by federal government and €by state governments. Defense spending of more than 1% of GDP will be exempted from the debt brake and state governments will be allowed to run annual deficits of up to 0.35% of GDP. Bundesrat, the upper house of parliament, has passed the debt reform.
Final February CPI showed 2.3% y/y increase in prices, a tick down from 2.4% y/y as preliminary reported with a 0.4% m/m increase instead of 0.5% m/m as preliminary reported. ECB president Lagarde stated that if US would impose 25% tariffs on imports from the EU it would result with Eurozone GDP decline of 0.3% in the first year and 0.5% if EU imposes retaliatory measures.
This week we will have preliminary PMI data for the month of March.
Important news for EUR:
Monday:
S&P Manufacturing PMI (Eurozone, Germany, France)
S&P Services PMI (Eurozone, Germany, France)
S&P Composite PMI (Eurozone, Germany, France)
GBP
Payrolls change for February saw economy add 21k jobs. January ILO unemployment rate stayed unchanged at 4.4%. Average weekly earnings rose 5.8% 3m/y vs 5.9% 3m/y as expected with ex bonus category staying at 5.9% 3m/y as was in December. ONS has provided the usual caveat about the quality of data but BoE will remain concerned with such a strong wage growth and its potential impact on inflation pressures.
BoE has left the bank rate unchanged at 4.50% as widely expected but there were interesting changes. First, the vote was 8-1 in favour of no change (Dhingra voted for a 25bp rate cut) vs 7-2 as markets were expecting with some even seeing potential for a 6-3 vote. Second, there was a sentence in the statement saying “A gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate”. This sentence indicates possibility that we will get less than one cut per quarter, which is currently priced in by markets, which in turn should lead to GBP strength. They have noted substantial progress on disinflation and emphasized increased uncertainties due to global trade policy, tariffs. If inflation pressures are pushed down it would warrant a less restrictive path of bank rate.
This week we will have preliminary March PMI data as well as February inflation data which will be followed closely now that BoE has shifted its focus back on inflation.
Important news for GBP:
Monday:
S&P Manufacturing PMI
S&P Services PMI
S&P Composite PMI
Wednesday:
CPI
AUD
February employment report was an ugly one. Employment change saw economy losing 52.8k jobs while expectations were for economy to add 30k jobs making it a miss of over 80k jobs. This is the first drop in employment since March of 2024. Looking into the details we see the unemployment rate remaining at 4.1% but only due to a plunge in participation rate to 66.8% from 67.2% in January. Full-time jobs saw a loss of 35.7k while part-time jobs declined by 17.1k. Additionally, previous month’s numbers were revised down and such an ugly report will nudge RBA towards rate cuts and AUD is feeling the pressure.
Data from China for the January-February period saw retail sales print 4% y/y as expected, up from 3.7% y/y in December. Communication appliances led the growth with a staggering 26.2% y/y followed by sports and recreation with 25% y/y while auto sales were down 4.4% y/y. Industrial production came in at 5.9% y/y vs 5.3% y/y as expected and down from 6.2% y/y seen in December. The rail, ships, and aeroplane category led the way with 20.8% with the auto sector growing of 12%. Industrial robots and service robots showed biggest increases in terms of products.
Over the weekend State Council of China published a 30 point plan on how to boost consumption. Boosting consumption was given top priority at last week’s Two Sessions. The main focus will be on increasing capacity and willingness of households to consume. The plan includes steps to improve minimum wage and jobs market as well as support the stock market. In order to improve willingness to spend the plan says it will take measures to increase pensions and improve health insurance. Bonds in the amount of CNY300bn will be issued to help spur consumption, specifically for automobiles, home appliances and electronics.
NZD
Q4 GDP showed growth of 0.7% q/q s 0.3% q/q as expected. The economy returns to growth after declining for past two quarters. GDP continues to shrink on y/y basis as it printed a -1.1%. Current account deficit for the final quarter of 2024 increased by more than expected.
CAD
February inflation data saw headline number jump to 2.6% y/y from 1.9% y/y in January while a 2.2% y/y print was expected. CPI rose 1.1% m/m. All three of core measures increased with median and trim printing 2.9% y/y while common printed 2.5% y/y increase in prices. With tariff threats looming inflation data has taken the backseat. BoC stated previous week that they are focused on keeping price stability but they put tariff risk at the forefront of their concerns.
BoC governor Macklem stated that the main goal in setting monetary policy is to minimize the risk of errors which will mean being less forward-looking than normal but it also means acting quicker when data show greater clarity. He emphasized the potential threat of tariffs on inflation and added that the greater the threat the more focus will have to be on anchoring inflation expectations. Macklem stated that February data fundamentally changed bank’s view and reiterated their commitment to controlling inflation. BoC seems to move to the pause for now as they assess impact of tariffs but they will be ready to act faster than usual in any direction as needed. Prime Minister Carney scheduled elections for April 28.
JPY
BoJ left short-term policy rate unchanged at 0.5% as was widely expected. Accompanying statement showed that economy is recovering moderately while consumer spending is increasing at a moderate pace. Inflation expectations are showing gradual increase while “Underlying inflation expected to align with the BoJ’s price target in the latter half of the three-year outlook period.“ Economy is expected to continue growing above potential. Uncertainty around economic and price outlook remains high with trade tensions the biggest worrying factor.
Governor Ueda stated at the press conference that wage growth from spring negotiations were was in line with their January view then adding that wage growth is on track or maybe even stronger than anticipated. Neutral rate remains unknown and it is hard to tell how tariffs will impact the economy in the short-term. BoJ will watch tariff developments, remain data-dependent and committed to policy normalization. There was no push for faster rate hikes or much hawkish tones in statement and in his remarks but the door for potential rate hike in May has been left open.
February national CPI slowed down to 3.7% y/y from 4.% y/y in January due to renewed government energy subsidies and decline in fresh food prices. Markets were expecting a 3.5% y/y print so this still shows stronger inflation pressures. Additionally, CPI ex fresh food and energy, so-called “core-core” and the one that BoJ closely follows, ticked up to 2.6% y/y from 2.5% y/y the previous month. Domestic services are keeping prices elevated. Rengo, Japanese largest trade union, announced that in second-round data they see an average wage increase of 5.40%. This would mark it a second year of above 5% wage increases and will keep inflation pressures on. Inflation report combined with wage data should give more credence to BoJ rate hike in May.
CHF
SNB total sight deposits for the week ending March 14 came in at CHF448.5bn vs CHF444.1bn the previous week. Deposits are moving from the lower bound as uncertainties around world make Swissy look attractive to some investors. Swiss government has lowered GDP forecasts for 2025 to 1.4% and for 2026 to 1.6% from 1.5% and 1.7% as seen previously. CPI fr 2025 was left unchanged at 0.3% while 2026 CPI was lowered to 0.6% from 0.7% previously. Global trade uncertainty caused by tariffs was the main reason for the downgrade.
SNB has cut interest rate to 0.25% as was widely expected. They have reiterated their willingness to act in FX market if necessary. Emphasis was put on uncertainties troubling global and Swiss economic growth. Inflation trajectory is moving in line with expectations and it is expected to further ease gradually in the coming quarters. New projections see CPI around 0.3% in Q2 and 0.4% for 2025, previous projection was for 1.1% CPI in 2025, with average inflation increasing to 0.8% in 2026 and 2027. GDP was unchanged and it is still seen in the range of 1-1.5% in 2025. Governor Schlegel stated that monetary conditions are now appropriate and that probability of further easing is low.
