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ECB meeting, NFP, inflation data from Eurozone and Switzerland, employment data from Canada, Q4 GDP from Australia and Two Sessions meetings from China will highlight a very eventful and action packed week ahead of us.
USD
President Trump confirmed that tariffs on Mexico and Canada that are scheduled for March 4 will proceed, his exact words “The tariffs are going forward on time, on schedule”. He has met with French president Macron in White House where they had good conversations on Russia – Ukraine peace deal. President has also terminated a deal with Venezuela and stated that 25% tariffs on goods coming from the EU will be announced soon claiming the bloc was created to “screw the United States”. After some confusion during the week, Trump has clearly stated that tariffs on Canada and Mexico will proceed on March 4 and that China will be slapped with additional 10% in tariffs. February consumer confidence by conference board plunged to 98.33 from 105.3 in January.
Second reading of Q4 came in unchanged at 2.3% annualized. GDP deflator and core PCE readings came in higher than in advanced reading 2.4% and 2.7% vs 2.2% and 2.5% respectively. Private consumption contributed 2.79pp to the reading, lower than 2.82pp in the advanced reading. The decline was made up for by increases from government spending and net trade. Initial jobless claims printed 242k vs 221k as estimated and up from 220k previously. This is the highest reading since the first of October 2024.
January PCE report saw headline number tick down to 2.5% y/y from 2.6% y/y in December with a 0.3% m/m read (0.325% unrounded). Core reading dipped down to 2.6% y/y as expected from 2.8% y/y the previous month, also on a 0.3% m/m reading (0.285% unrounded). Numbers are still above 2% annualized but they are moving in the right direction which will keep Fed happy. Personal incomes jumped 0.9% m/m while personal spending dropped 0.2% m/m. The biggest drag on spending were motor vehicles and parts. Analysts see bad weather as a culprit for a drop in spending and with incomes rising spending should pick up once weather improves. Atlanta Fed GDPNow estimate for the Q1 plunged to -1.5% on Friday which triggered a growth scare and a massive risk off mood in the markets.
The yield on a 10y Treasury started the week at 4.43%, rose to 4.45% and finished the week at around 4.24%. The yield on 2y Treasury started the week at 4.20% and reached the high of 4.23%. Spread between 2y and 10y Treasuries started the week at 22bp and finished the week at 25bp as curve continued to bull steepen. FedWatchTool sees the probability of a 25bp rate cut at March meeting at around 5%, while probability of a no cut is around 95%. June is the first meeting that sees above 50% probability of a rate cut.
This week we will have ISM PMI data as well as NFP on Friday. Headline number is seen at around 180k with the unemployment rate staying at 4%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
German elections saw CDU/CSU take over 28.6% of votes and AfD coming in second with 20.8%. Former Chancellor’s Scholtz party, SPD, came in third with 16.4% of votes. Friedrich Merz, leader of the CDU will be the new Chancellor. Although both CDU and SPD finished in top three their results are, respectively, second worst and worst in the history. New government is expected to be formed by Easter and negotiations are underway. “Grand Coalition” consisting of CDU/CSU and SPD is expected to form the government. It is clear that CDU, SPD, Green party and Die Linke (The Left) would have a 2/3 majority in parliament needed for outright changes to the debt brake.
ECB policymaker and Bundesbarnk president Nagel warned that ECB should not rush rate cuts but take a more measured reports. He stated that inflation outlook is fairly encouraging but that persistent core and services inflation pose a cause for caution. Member of ECB board Isabel Schnabel warned that subdued growth is not a proof of of restrictive policy and added that she cannot be certain that policy is restrictive. Additionally, she added that “It is becoming increasingly unlikely that current financing conditions are materially holding back consumption and investment”. These hawkish comments are giving a boost to the EUR. On the other hand, illustrating divide in the ECB, ECB member Strournaras stated that it is too early too discuss a pause in rate cuts and added that rates are definitely too restrictive.
Preliminary French CPI for February plunged to 0.8% y/y from 1.7% y/y mainly due to base effects. On the other hand, German, Italian and Spanish readings all came in line with expectations at 2.3% y/y, 1.7% y/y and 3% y/y respectively.
This week we will have preliminary February CPI and ECB meeting. Rate cut is all but guaranteed and we will have to see whether there will be some changes in the wording after rather hawkish comments this week. We will also get new projections with GDP expected to be revised down while inflation projection should remains unchanged.
Important news for EUR:
Monday:
CPI
Thursday:
ECB Interest Rate Decision
GBP
BoE MPC member Dhingra, the most dovish MPC member, warned that monetary policy is still very restrictive. She added that medium-term inflation pressures are easing and that levels of capacity utilisation point to a weak demand. Additionally, she clarified that in her own opinion gradual rate cuts do not mean 25bp cuts per quarter. BoE Ramsden emphasized importance of careful and gradual approach to rate cuts but clarified that there may be some instances that require faster pace of rate cuts.
AUD
January monthly inflation report saw headline number stay at 2.5% y/y while expectations were for it to tick up to 2.6% y/y. Trimmed mean, core reading, ticked up to 2.8% y/y from 2.7% y/y in December. RBA targets inflation in 2-3% range so this report is a positive on that front. As a reminder, monthly reading does not encompass full basket of goods that go into quarterly CPI reading, but it can act as a very good proxy. Q4 capex data declined 0.2% q/q after upwardly revised increase of 1.6% q/q in Q3. Decline was led by plant and machinery capex which declined 0.8% q/q.
China’s Two Sessions will be held next week and will provide key policy priorities for the year. Growth target is expected to remain at 5% while inflation target will be lowered to 2%. Monetary policy is expected to be described as proactive.
This week we will have Q4 GDP data.
Important news for AUD:
Wednesday:
GDP
NZD
Q4 retail sales data surprised to the upside as they printed a 0.9% q/q increase vs 0.6% q/q as expected and significant improvement from -0.1% q/q in the Q3. Additionally, retail sales printed 0.2% y/y making it the first positive y/y reading since Q3 of 2022! Business confidence reversed a three-month downtrend in February as it printed 58.4 after a 54.4 print in January. Biggest increases were seen in investment and employment intentions while residential and commercial construction saw biggest declines. On the inflation front pricing intentions increased a bit but cost and inflation expectations dropped which is very reassuring for the RBNZ.
CAD
Q4 GDP data surprised to the upside as it printed 2.6% annualized vs 1.8 annualized as expected. In Q3 the economy grew by 2.2% annualized. Such a beat give some strength to the CAD that has been battered the entire week in the anticipation of tariffs to come. USDCAD was up over 250 pips in the week with pair reaching 1.46.
This week we will get employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Tokyo CPI report for the month of February showed inflation easing. Headline number printed 2.9% y/y vs 3.2% y/y as expected and down from 3.4% y/y in January. Excluding fresh food category printed 2.2% y/y vs 2.3% y/y as expected and down from 2.5% y/y the previous month. Ex food and energy category, core-core, remained unchanged at 1.9% y/y. Core-core reading suggests that underlying pressures remain but declines in headline and core number may deter BoJ from hiking rates soon. JPY is weakening as market participants lower rate hike probabilities.
CHF
SNB total sight deposits for the week ending February 21 came in at CHF438.1bn vs CHF432.5bn the previous week. There was a jump in the reading, very rare one in the last two months, but overall total sight deposits are still at the lows. Q4 saw growth slow down to 0.2% q/q as expected after a 0.4% q/q in Q3 and 1.5% y/y vs 1.9% y/y in the previous quarter. There was almost equal contribution to growth from industry and services sector.
This week we will get inflation data.
Important news for CHF:
Wednesday:
CPI
