A busy week for central banks includes decisions from the Fed (Wed), BoJ (Thu), and BoE (Thu). We also have a raft of earnings reports. Later today we have US retail sales, Empire manufacturing and business inventories and the OECD’s report on the global economy. Germany ZEW and US housing starts and industrial production will garner market focus on Tuesday, and we will hear from the ECB’s Rehn. The BoJ and Fed rate decisions take centre stage on Wednesday, both central banks are expected to hold rates. We also have Eurozone CPI, and we will hear from the ECB’s Galhau, Centeno, Guindos and Elderson. The BoE rate decision, expected to hold, and the UK employment report are due on Thursday, and later we have the Phili. Fed factory Index, jobless claims and existing home sales. On Friday we will hear from the ECB’s Escriva and Fed’s Williams.
A mixed week for asset classes amid tariff threats, softer-than-expected US CPI and PPI figures, and University of Michigan prints. The yield on the 10-year UST was marginally higher at 4.31% while the S&P Index fell 2.27%. The dollar closed marginally lower over the week, experiencing lows for the year against the renminbi, euro, Mexican peso, yen and Norwegian and Swedish krona. Brent crude closed 0.31% higher on the week, at $70.59pb. Gold, meanwhile, briefly broke through £3,000 per ounce on Friday amid economic uncertainty, closing the week 2.58% higher.
US CPI eased to 0.2%mom for both the headline and core prints (previously at 0.5% and 0.4%, respectively). The annual inflation rates also came in softer at 2.8% and 3.1%, from 3.0% and 3.3%, respectively; the core printed its lowest level since April 2021. Housing costs, whilst moderating to a 0.3% increase, still accounted for approximately half of February’s price rises. Food and energy indices both climbed 0.2%, with egg prices surging 10.4% for the month, pushing the yearly increase to a staggering 58.8%. PPI, which feeds into the Fed’s favoured PCE reading, also missed expectations. PPI final demand was flat in February, easing to 3.2%yoy. Interestingly, PPI ex food and energy contracted 0.1%.
The March University of Michigan consumer sentiment report indicated serious economic concerns, with headline sentiment plunging to 57.9 (lowest since November 2022) and the expectations index dropping to 54.2 (lowest since July 2022), both missing consensus forecasts. Job security worries are increasing, as the probability of job loss in the next five years rose to 22.6%, the highest since July 2020. More alarming are the inflation expectations, with one-year projections jumping to 4.9% and long-term (5-10 years) expectations rising to 3.9%, the highest since February 1993, suggesting inflation expectations are becoming unanchored. Therefore, the Fed’s dot plot, Powell’s presser and any further indication on ending QT will be a key focus of markets this week.
The UK economy unexpectedly shrank by 0.1% in January, missing growth forecasts and challenging the government before its Spring Statement. Manufacturing declines drove the contraction, prompting Chancellor Reeves to pledge faster economic action amid opposition criticism. With April tax increases looming, US tariff uncertainty, and the BoE halving its growth forecast, the government is expected to announce welfare cuts as Reeves works to meet fiscal rules in what is expected to be a tighter spending environment.
Data released this morning signalled that China’s economy made a stronger-than-expected start to the year, with industrial production rising by 5.9%yoy (exp. 5.3%yoy). Retail sales also exceeded expectations, increasing by 4.0%yoy (exp. 3.8%yoy), reflecting improved consumer demand. Fixed asset investment grew by 4.1%yoy (exp. 3.2%yoy), though weaknesses in the real estate sector persisted, with property investment falling by 9.8%. Private investment remained stagnant, suggesting subdued confidence among smaller businesses. The National Bureau of Statistics highlighted that new policies to stimulate growth have started to show positive effects, particularly in the industrial and services sectors. To support domestic demand, the State Council introduced a “special action plan”, over the weekend, to raise household incomes and reduce financial burdens; markets appear to need further depth and clarity.
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