Geopolitical tensions are likely to keep markets on edge this week, particularly against a backdrop of limited and largely backward-looking data. Today brings eurozone confidence indicators, alongside US construction spending and the Chicago Fed activity index. We will also hear from the ECB’s Lane, while UK Prime Minister Starmer appears before the Liaison Committee. Attention turns to global PMIs on Tuesday, with further ECB commentary from Cipollone and Kocher. Wednesday is the busiest data day, featuring Germany’s IFO business climate, UK CPI, and a suite of US releases including import prices, the current account balance, and MBA mortgage applications. Central bank speakers will be in focus at the ECB’s “Its Watchers” conference, including Lagarde, Lane, Rehn and Kocher. On Thursday, US initial jobless claims are due, while G7 foreign ministers meet to discuss geopolitical developments. We will also hear from the Fed’s Jefferson, alongside ECB Vice-President Guindos and BoE speakers Breeden, Greene and Taylor. The OECD will publish its latest economic outlook. Friday rounds out the week with eurozone inflation expectations and the University of Michigan consumer sentiment survey, with additional remarks from the Fed’s Daly and Paulson.
Another uneasy week for markets unfolded amid ongoing geopolitical tensions, a hotter-than-expected (pre-conflict) US PPI print, and a clear shift in central bank rhetoric from cautious optimism to a more defensive, “high alert” stance. The UST curve flattened over the week as growth concerns intensified. The 2-year yield rose 18bps to 3.90%, while the 10-year increased 10bps to 4.38%, and the 30-year edged 4bps higher to 4.90%. Risk sentiment deteriorated, with major US equity indices recording a fourth consecutive weekly decline; the S&P 500 fell 1.9%. Meanwhile, the DXY index slipped 0.71%, as oil prices surged, with Brent crude rising 8.77% to $112.19 per barrel.
As expected, the Fed left rates unchanged. Chair Powell reiterated that the US economy continues to expand at a “solid pace,” but highlighted elevated uncertainty stemming from geopolitical developments and rising energy prices. Reflecting this, the Fed revised its 2026 PCE inflation forecast higher to 2.7%. The most notable shift, however, centred on the labour market and the updated “dot plot.” Powell struck a more cautious tone, noting that, following downward revisions, private sector job creation has effectively stalled, describing conditions as a “zero employment growth equilibrium” on a “shaky foundation” with clear downside risks. While the median dot still points to one 25bp rate cut by end-2026, there has been a meaningful shift among policymakers toward fewer cuts. Powell emphasised the Fed is in “no hurry” to adjust policy, as it balances the risk of energy-driven inflation against the potential for a more abrupt, non-linear deterioration in the labour market.
Last week, China’s economic narrative reflected a balance between resilient activity data and a cautious policy stance. January–February figures surprised to the upside, with retail sales up, industrial production rising 6.3% and a recovery in fixed-asset investment driven by government-led infrastructure spending. However, the property sector remains a persistent drag, now in its sixth year of contraction, with home starts down more than 20%. On policy, the People’s Bank of China maintained a stance of managed stability, leaving benchmark Loan Prime Rates unchanged at 3.0% (1-year) and 3.5% (5-year). This suggests policymakers are in no rush to ease aggressively, particularly as they monitor externally driven inflation risks, including energy prices. As a result, the renminbi traded in a relatively narrow range; it has remained broadly stable, reflecting Beijing’s priority of maintaining currency stability and avoiding disorderly capital outflows.
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