This week kicks-off with global manufacturing and services PMI data, and the Fed’s Bostic and BoE’s Bailey speak today. Germany IFO, and US new home sales and the conference Board consumer confidence prints are due on Tuesday. The Bao Forum, or “China’s Davos” takes place (Tue-Fri). Central bank chatter on Tuesday includes the Fed’s Williams and the ECB’s Vujcic and Holzmann. UK CPI and US durable goods garner interest on Wednesday. The UK Chancellor Reeves’ “Spring Statement” will be scrutinised, particularly given Reeves has warned that as many as 10,000 civil servants will be replaced with better use of tech including AI. We will also hear from the Fed’s Musalem and the ECB’s Cipollone. Revised US GDP, and initial jobless claims follow on Thursday. On a busy day for central bank speak, we will hear from the Fed’s Barkin, the BoE’s Dhingra and the ECB’s Guindos, Galhau, Wunsch, Escrivá and Schnabel. Eurozone consumer confidence, Japan CPI, UK GDP and retail sales and US income and spending, core PCE and Uni. of Michigan consumer sentiment will keep markets on their toes.
Central banks were a key feature last week. The Fed held pat on rates, as expected while noting slightly higher inflation and weaker growth in its projections. Markets responded positively to Powell’s description of potential tariff-based inflation as “transitory,” interpreting this as flexibility to cut rates if needed despite inflation concerns. Additionally, the Fed announced it will dramatically slow its Treasury balance sheet reduction from USD25bn to USD5bn monthly.
Later the Bank of Japan unanimously maintained its policy rate at 0.5%, with Governor Ueda providing cautious guidance without specifying the timing of the next rate hike. While emphasising uncertainties around US trade policy, the BoJ is closely monitoring inflation risks following strong preliminary Shunto wage negotiations that exceeded 5% growth, with upcoming April inflation data likely to influence the possibility of a May rate hike.
The BoE also maintained its benchmark interest rate, at 4.5%, with an 8-1 majority vote, as the UK faces uncertainty around global trade and domestic economic stagnation. The central bank noted intensified global trade policy uncertainty and weakening economic indicators; while suggesting a “gradual and careful approach” to future monetary policy adjustments, balancing inflation concerns against growth risks in what appeared to be a more hawkish stance than expected.
A mixed week for asset classes amid tariff rhetoric and potential 2 April reciprocal tariffs saw the yield on the 10-year UST rally 7bps to 4.25%, while the S&P Index gained 0.51%. The dollar also gained, the DXY Index closed 0.36% higher on the week. Oil enjoyed a 2.24% increase, to $72.16pb amid tighter supply.
US data was once again largely mixed, empire manufacturing massively disappointed at -20, while retail sales were broadly softer-than-expected. The New York Fed services business activity print fell to -19.3 in March, the lowest level since early-2023. The Phili. Fed Business outlook was surprisingly strong, however, lower than the previous reading, and existing home sales also beat market expectations for a fall at +4.2%mom.
Elsewhere, the People’s Bank of China’s Q1 monetary policy meeting emphasised reducing social financing costs, signalling intent to lower funding costs whilst favouring structural tools over broad-based easing. The PBoC plans to optimise re-lending mechanisms for technological innovation and explore new policy tools for investment, consumption, and trade stabilisation. At the start of this week’s China Development Forum, where the theme is “Unleashing Development Momentum for Stable Global Growth”, the nation’s Premier Li Qiang said China is prepared for “shocks that exceed expectations”.
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