by Kim | Apr 21, 2025
Key events this week – S&P prelim PMIs for April, US Durable Goods Orders, Fed Beige Book
Recap from last week: Tariff Uncertainty Weighs on Central Bankers.
Uncertainty surrounding US tariffs looms large over global monetary policy. Speeches last week showed central bankers shifting into a somewhat reactive balancing act of monitoring data while bracing for a potential tariff-induced shock. To be fair, the ECB and BoC have now built a cushion of rate cuts. However, this environment of significant ambiguity regarding the trajectory of trade appears to be solidifying a more hesitant and data-dependent stance, particularly as central bankers remain protective of their price stability mandates in the face of the higher-than-expected tariff risks.
The ECB cut rates as expected, noting that the disinflation process remains on track and that the euro area economy has been “building up some resilience against global shocks”. While inflation has eased, the outlook is clouded by “exceptional uncertainty”. The assessment of the policy stance relative to the theoretical neutral rate was suspended, and the ECB President colorfully stated;
Our view – my view certainly – is that the neutral rate, apart from the measurement issues associated with it, is a concept that works for a shock-free world. That’s how it is described. And anybody in this room who thinks that we are in a shock-free world would, I suggest, maybe raise their hand or have their head examined. Source: ECB President Lagarde, Press Conference Q&A, 17 Apr 2025
The ECB President emphasized the importance of readiness (attentive to new developments) and agility (not rushing to a particular stance) in determining the policy stance in the short term – “and that will require a cohesive approach that will be based more than ever on the analysis of data”.
The BoC kept its policy rate unchanged after seven consecutive rate cuts as it shifted into a wait-and-see mode to assess the impacts of tariffs on inflation and the economy. The BoC did warn that while growth was starting to show signs of slowing, inflation outcomes were uncertain. The latest CPI report showed underlying inflation remained firm in Mar. Guidance remained suspended until the situation is clearer;
Faced with pervasive uncertainty, Governing Council will proceed carefully, with particular attention to the risks. That means being less forward-looking than usual until the situation is clearer. It also means we are prepared to act decisively if incoming information points clearly in one direction. Source: BoC Statement, 16 Apr 2025
In his speech last week, US Fed Chair Powell maintained that the US economy is “in a solid position” with a strong labor market. He did acknowledge that the tariffs announced to date were ”significantly larger” than anticipated and that the same is likely to be true of the economic effects. His focus on anchored inflation expectations and the risks of persistent price pressures from tariffs suggested a reluctance to ease policy soon. Overall, Powell’s speech leaned hawkish in its cautious tone and focus on inflation risks over immediate rate cuts. He stopped short of committing to tighter policy, rather, keeping options open based on incoming data.
This was in contrast to Fed Governor Waller’s speech – where both paths seemed to lead to rate cuts. He concluded that the future path of tariffs will drastically alter the economic outlook and the necessary monetary policy response. He offered two broad scenarios. Large, persistent tariffs pose a significant risk of economic slowdown and rising unemployment, potentially warranting aggressive rate cuts despite a temporary inflation spike. Smaller, diminishing tariffs would have a less severe impact, allowing for a more measured policy response. This opens the possibility of rate cuts in the latter half of the year driven by improving underlying inflation or allowing for “good news” rate cuts. The next FOMC meeting is on 6-7 May.
US economic data followed a similar theme last week, reflecting a divergence between soft and hard data. US retail sales rebounded strongly as expected, due mostly to growth in motor vehicle sales, though retail sales increased across most categories. There is uncertainty over the durability of the improvement if growth is due to a pull forward of consumption before tariffs are in effect. Housing permits increased by more than expected, however housing starts (feeds into GDP) were lower than expected. Overall industrial production declined (due to the output of utilities), but manufacturing output growth was positive for Mar, though slowed from Feb. The first two regional manufacturing surveys for Apr (soft data), reflected a further weakening in activity and sentiment. The surveys captured the initial response to the Liberation Day tariff announcement, as well as the announcement of the pause on reciprocal tariffs.
Overall, the Atlanta Fed GDP Nowcast for Q1 growth “improved” slightly last week, but remained low at -2.2% (as of 17 Apr), with the gold-adjusted forecast for Q1 growth at -0.1%.
Outlook for the week ahead; S&P prelim PMIs for April, US Durable Goods Orders, Fed Beige Book.
The data flow will be somewhat lighter this week with a focus on both hard and soft data. The news flow around tariffs and potential “trade deals” will continue to pose headline risks. The 2025 World Bank/IMF meetings will take place this week.
Key factors to watch this week;
S&P preliminary PMIs for Apr – US, Eurozone, France, Germany, Japan, and Australia
- The April preliminary PMI reports will be an important read on business activity and sentiment reaction since the US Liberation Day tariff announcement.
US data – we continue to monitor the divergence between soft and hard data. Data flow this week will be light with a few highlights. Q1 earnings reports will remain in focus.
- US Durable Goods Orders for Mar are expected to increase by +1.5% in Mar, up from +1% in Feb.
- The US Fed Beige Book for the last six weeks will be released this week – providing some important anecdotes from regional Fed contacts on activity, prices, and the labor market.
- New home sales are expected to be little changed at 0.68m (annualized) in Mar, up from 0.676m in Feb. Existing home sales are expected to slow to 4.14m in Mar, from 4.26m in Feb.
- US Q1 earnings reports will remain in focus this week; particularly regarding guidance and mentions of tariff/trade effects.
There are several Fed speeches this week including Vice Chair Jefferson and Governor Waller (though this is noted as “opening remarks”). It will be the final week of Fed speeches ahead of the black-out period next week, leading up to the next FOMC meeting on 6-7 May.
This week, the US Treasury will auction and/or settle approx. $434bn in ST Bills, with a net paydown of $61bn. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes and the 2-year FRN this week. They will settle at the end of the month, together with the 20-year Bond and 5-year TIPS.
QT this week: Approx $10bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Apr 14, 2025
Key events this week – US retail sales, US Fed Chair Powell speech, BoC & ECB decisions, and global inflation data
Recap from last week: Uncertainty Continues to Cloud the Economic Horizon.
Negative market reaction to the US tariff shock of April 2nd continued to intensify last week. However, on the eve of the implementation of reciprocal tariffs, a crucial development emerged: a short reprieve from some of the harshest measures.
Just before these much harsher reciprocal levies were set to take effect, President Trump announced a 90-day pause for further negotiations. While the pause was welcomed news for the markets, the baseline 10% import tariff remains in place, though President Trump has hinted at some possible exemptions. There was no reprieve for China on reciprocal tariffs and instead, the tariff war escalated. However, the US later announced an exemption on tariffs of imports of key electronic goods, including smartphones, from China. This announcement was later walked back by President Trump saying that it would only be a short reprieve, with a new tariff rate for electronic goods to be announced this week.
The ongoing chaotic policy announcements define a core element of the ‘new normal’: elevated and destabilizing policy uncertainty. While possibly aimed at leveraging negotiations, this persistent uncertainty poses significant risks, not only for markets, but also particularly for trade, and US firms reliant on global supply chains.
The risks of this backdrop of persistent uncertainty were reflected in the FOMC minutes last week. This uncertainty is seen as having the potential to dampen consumer spending, business hiring, and investment, and generally complicate the economic outlook. The minutes noted high uncertainty “about the net effect of an array of government policies on the economic outlook was high, making it appropriate to take a cautious approach”. Uncertainty over the effects on inflation and growth stemmed mostly from a lack of clarity over details of government policy changes. The minutes noted that growth remained solid, but was potentially moderating. Inflation concerns arising from tariffs were a key theme of the minutes, and there was a consensus that high tariff rates would possibly boost inflation.
The favorable Mar US inflation data released last week might be the calm before the tariff-inflation storm. This is a point likely to be acknowledged with caution in upcoming Fed speeches this week. Both the US CPI and PPI report for Mar surprised to the downside, indicating a likely softer PCE inflation reading in a few weeks. The fall in energy prices (gasoline), slower shelter price growth (now the slowest monthly pace of this cycle), and a contribution from a slight fall in “super-core” services prices made the largest contributions to the slowdown this month. PPI inflation was also lower than expected, as food, energy, trade margins, and warehousing prices declined. The lower-than-expected PPI inflation showed little immediate reflection of the more widespread increase in input prices reported by manufacturers in recent monthly surveys.
One of the key themes we’ve been watching in the US data flow is the divergence between weakening soft data and so far, solid hard data. After the Mar employment data and wholesale trade data last week, the adjusted Atlanta Fed GDP nowcast for the Q1 growth run rate improved slightly to -0.3%. The Atlanta Fed has also now incorporated an estimate of the Q1 “real final sales to private domestic purchasers” growth (GDP excluding the external balance). This measure has been referenced by the FOMC previously and removes the current noise from the goods trade balance. It shows that domestic demand has improved through Q1 so far, and is back to +2% annualized growth, though down from the Q4 rate of +3%.
Outlook for the week ahead; US retail sales, US Fed Chair Powell speech, BoC & ECB decisions, and global inflation data.
It will be a short week ahead of the Easter break.
This week’s focus will likely remain squarely on the unfolding tariff situation and market volatility. The tariff narrative and/or market volatility may overshadow a busy week of key data releases, Fed speeches, and central bank decisions unless these releases themselves reveal a significant impact from trade tensions.
Key factors to watch this week;
One of the key themes we’ve been watching in the US data flow is the divergence between the soft and hard data. For the moment, soft data continues to weaken while hard data remains fairly solid. The data flow this week will provide both hard data inputs into the US growth outlook for Q1 and some soft survey results for Apr.
- US retail sales are expected to rebound strongly in Mar by +1.4%, from +0.2% in Feb. We’ll be watching for a ‘pull-forward’ of auto purchases ahead of tariffs. Offsetting stronger spending may be some softer gasoline sales (due to falling prices in the CPI). The retail control group is what will feed into the GDP measure and increased by +1% last month (Feb).
- US industrial production is expected to ease by -0.2% in Mar, after a stronger rebound in Feb of +0.7%.
- Building permits are expected to be little changed at 1.45m (annualized rate) while housing starts are expected to slow to 1.42m (annualized) from 1.5m in Feb.
- The first regional manufacturing surveys for Apr will be released and may provide a further view of tariff effects. The NAHB housing market sentiment survey for Apr will also be released.
- US Q1 earnings reports will be in focus over the next few weeks; particularly regarding guidance and mentions of tariff/trade effects.
US Fed speeches will be important this week given the recent market turbulence. Fed Governor Waller will give a speech on the economic outlook on Monday and US Fed Chair Powell will also give a speech on the economic outlook on Wednesday. Both speeches will be important for how they frame the latest inflation and growth data amid the tariff and trade uncertainty as well as potentially addressing developments in the US Treasury market.
There will be several important central bank decisions this week, likely with a focus on how these central banks are navigating the tariff landscape;
- The Bank of Canada is expected to keep rates unchanged. However, the decision will be important as it balances a recent weakening in labour market conditions with expectations for firmer inflation. The latest Canada CPI for Mar is due out before the BoC meeting.
- The ECB is expected to cut rates by 25bps at this meeting. With inflation easing in the latest Mar data, the ECB is likely to consider the downside risks to growth from the tariff agenda.
- The latest RBA minutes will be released this week.
Outside of the US, inflation data will be important.
- Canada CPI is expected to ease over the month but stay elevated at +0.7% in Mar, from +1.1% in Feb (the rise in Feb was due to the end of the GST break over the holiday period). Headline CPI rebounded to +2.6% in Feb and is expected to remain elevated in Mar. The BoC core inflation measures, such as the trimmed mean also firmed recently and are expected to remain at +2.9%, having slowed to +2.5% back in Sep and Dec 24.
- UK CPI is expected to edge slightly lower to +2.7% over the year in Mar, from +2.8% in Feb. Annual core CPI is expected to slow to +3.4% in Mar from +3.5% in Feb.
- Japanese CPI is expected to firm, with the BoJ core measure excluding Fresh Food increasing to +3.2% in Mar from +3% in Feb.
There will also be a full range of Chinese data for Mar out this week including trade data (export growth was stronger than expected), Q1 GDP growth, retail sales, and industrial production.
This week, the US Treasury will auction and/or settle approx. $601bn in ST Bills, Notes, and Bonds, raising $0bn in new money. The US Treasury will also auction the 5-year TIPS and 20-year Bond this week, and both will settle at the end of the month.
QT this week: Approx $33bn of ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $2.7bn in Notes, Bonds, and TIPS will mature and roll off the Fed balance sheet.
The US Tax Day is this week, 15 Apr 2025.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Apr 7, 2025
Key events this week – US reciprocal tariffs, US CPI & PPI, FOMC Minutes, RBNZ monetary policy meeting
Recap from last week: The US tariff shock.
The unexpected scale and breadth of the “Liberation Day” tariff announcement sent shockwaves through markets, with likely ramifications for US inflation, growth, Fed policy, and market sentiment.
There were two levels to the tariff announcement. The first was a blanket 10% duty on all articles imported into the US, with a few exceptions, and became effective on 5 April 2025. The second layer, the so-called “reciprocal” tariffs, were much higher than expected and combined with the 10% base tariff, raised notable concern, as reflected in market reaction over the last few days. This reciprocal tariff singled out trading partners with whom the US has a trade deficit, and additional duties are to be applied to their imports at varying rates. The effective date for reciprocal tariffs is this week 9 April, providing a small window for negotiation among US trading partners. The country most targeted by the tariff announcement, China, has already announced a suite of retaliatory actions and this is likely to be viewed as an escalation. The next few days should reveal whether other trading partners will retaliate or negotiate – making this a potential avenue for the administration to de-escalate reciprocal tariffs over the coming days and weeks. US President Trump noted that further industry-specific tariffs are still to be considered.
In his speech on Friday, US Fed Chair Powell weighed in on the tariff announcement and the more immediate implications for monetary policy. He noted that the tariff rates announced were “significantly larger than expected” and pointed to the possibility of larger-than-expected effects on the economy, inflation, and growth, but there is still significant uncertainty over the ‘final’ details of the tariffs. Powell highlighted that, for now, the tension remained between weakening ‘soft’ survey data and still robust, though lagging, ‘hard’ data. While uncertainty remains elevated, the Fed Chair reiterated that the Fed continues to take a broader view of the policy landscape and that policy settings are well placed for the FOMC to wait for greater clarity;
We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy. Source: Speech, US Fed Chair Powell, 4 Apr 2025
By the end of the week, markets had begun to price in more rate cuts for the US this year – reflecting increasing concerns over the US growth outlook. At the time of writing, markets are now pricing in five (5) US rate cuts (source: CME FedWatch) for this year. Overall for the week, the adjusted Atlanta Fed GDP nowcast for US Q1 growth slowed to a -0.8% annualized rate – which still only reflects data from the first two months of the year.
Despite moderating conditions, labor market data generally suggests the US consumer remains on solid footing. US non-farm payrolls were higher than expected in Mar at +228k, however, the payroll growth in the two months prior was revised lower by -24k. The 12-month average payroll growth has slowed to +157k – a year ago that average was +196k. The unemployment rate edged only slightly higher in Mar, but enough to tip the rate from 4.1% to 4.2% – still relatively low. Growth in hours worked slowed over the month and has slowed through the year to +0.6%. Growth in average hourly earnings was little changed from last month at 0.25%, but slowed to +3.8% over the year – the slowest pace since Jul 2024.
Even with fairly solid payroll growth, the JOLTS survey continues to signal underlying labor market vulnerability. In Feb, the number of job openings continued to fall, hiring rates stalled, and layoffs and discharges inched higher. The initial jobless claims edged lower in the latest week, however continuing claims have risen, reflecting the slower pace of hiring. The Challenger Job Cut Announcements for Mar pointed to notable weakness on the horizon for the second month. The announced cuts in Mar were the third highest on record for this survey at 275k – with the majority of these announcements (216k) attributed to the DOGE cuts.
Notably, Canada’s labor market in Mar was one piece of hard data that deteriorated last week. Net employment in Canada fell for the first time since Jan 2022, disrupting a short period of labour market recovery. The unemployment rate increased as expected to 6.7%.
Outlook for the week ahead; US reciprocal tariffs commence, US CPI & PPI, FOMC Minutes, and the RBNZ monetary policy meeting.
Tariffs will likely remain the central focus this week. Despite the Trump administration’s key announcements on tariffs, significant uncertainty persists regarding their final form, retaliation, and economic consequences.
The flat 10% tariff is now effective as of 5 April. The reciprocal tariff is due to be applied from 9 April. The question of retaliation, negotiation, or acceptance, by trading partners, will become clearer in the coming days and weeks. A key question is how the US responds to the retaliatory measures announced by China, effective 10 April. Headline risk remains extremely elevated, especially if the news is perceived to be positive for negotiating down tariff rates among bigger trading partners.
On the data flow, US inflation for Mar will be in focus – with both the CPI and PPI for Mar to be released this week. The minutes of the latest FOMC meeting will be released this week.
Key factors to watch this week;
US CPI and PPI reports for Mar will be released, providing input into the Fed-preferred PCE inflation measure. The data, especially the PPI report, may begin to reflect some of the pricing pressures reported by manufacturers throughout the Mar surveys.
- US headline CPI is expected to edge lower to +2.6% in Mar, from +2.8% in Feb. The monthly CPI is expected to increase by +0.1% in Mar, slowing from +0.2% in Feb.
- Core CPI is expected to slow to +3% in Mar, from +3.1% in Feb. The monthly pace of core CPI is expected to increase to +0.3% in Mar, from +0.2% in Feb.
- US headline PPI is expected to increase to +3.3% in Mar, up from +3.2% in Feb. The monthly pace is expected to increase by +0.2%, from 0% in Feb.
- Core PPI is also expected to increase to +3.6% in Mar, from +3.4% in Feb. The monthly core PPI rate is expected to increase by +0.3% in Mar, up from -0.1% in Feb.
The minutes of the latest FOMC meeting will be released this week. There will also be several US Fed speeches throughout the week.
The RBNZ will meet this week and is expected to cut rates by 25bps.
This week, the US Treasury will auction and/or settle approx. $479bn in ST Bills, raising $19bn in new money. The US Treasury will also auction the 30-year Bond and the 10-year and 3-year Notes this week – all will settle next week.
QT this week: Approx $13bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Mar 31, 2025
Key events this week – US tariff announcement, US non-farm payrolls & ISM surveys, Fed Chair Powell speech, RBA meeting, global S&P PMI’s Mar
Recap from last week: US inflationary pressures persist amid slowing growth
US data last week reflected a tension between signs that inflation pressures are persisting and signs that growth is slowing. Announcements of auto tariffs last week, ahead of a broader tariff announcement due this week, are fuelling consumer and business expectations of inflation in the near-term, and driving sentiment lower. At the same time, there are signs that US growth is slowing through Q1.
Last week’s reports underscored persistent inflation pressures and rising inflation expectations among households and businesses. Firstly, US PCE price inflation for Feb confirmed this trend, with headline inflation steady at +2.5% but the monthly rate slightly firmer. More concerningly, core PCE inflation rose to +2.8%, driven by increases in both core goods (now no longer deflationary) and core services. This suggests that progress on disinflation may be stalling.
Secondly, a further weakening in sentiment was influenced by expectations of rising inflation and this was broadly reflected in both consumer and business surveys last week. The consumer sentiment reports last week were consistent; there is a divergence between relatively stable, albeit low, sentiment readings for current conditions contrasting with a notable weakening in the outlook for personal finances, business conditions, unemployment, and inflation. Consumers are saying ‘Things aren’t great now, but the outlook is causing notable unease’.
Among businesses, the US S&P prelim PMI showed an improvement in private sector output in Mar – but conditions were mixed. A rebound in services output more than offset the marked fall in manufacturing output. There was a question about the durability of the services expansion. Rising input costs were a key theme of the report, highlighting that cost pressures had intensified across both sectors, but especially in manufacturing. While manufacturing firms were passing through these higher input costs, the report noted that concerns over sluggish demand were hampering service firms’ ability to pass on higher costs – despite the improvement in services activity output this month. The fall in the business outlook was led by concerns over policy initiatives, while firms also cited weakening customer demand.
Amid this persistent inflation, last week also brought further evidence of slowing growth. Business concerns over slowing demand were reflected in Feb’s slower-than-expected personal spending growth. Personal spending growth did rebound in Feb, but by less than expected, while the fall in spending for Jan was revised lower. In real terms, personal spending increased by a modest +0.1% in the month. It was notable that spending on services fell by -0.1% in real terms in Feb, led by a -1.4% fall in food services & accommodation – the third weak month in a row. Spending on goods did rebound in Feb, but only partially offset the fall in goods spending in Jan. The effect of the Auto tariff announcement last week may boost personal spending in the short term as demand may be pulled forward ahead of the tariff.
A relatively bright spot in the data was the personal income report for Feb – suggesting that, overall, the footing of the consumer/households remained solid, despite the dour outlook. Total personal income growth accelerated in Feb by more than expected – although growth was led mostly by an increase in “other” government transfer receipts (not a sign of economic strength, but there was no increase in unemployment insurance payments), however, employee compensation growth also accelerated. The other bright spot remains the relatively low and stable initial jobless claims – a near-term indicator suggesting that labor market conditions have not deteriorated more recently.
Zooming out to overall US economic growth, the latest estimate of GDP tracking for Q1 paints a similar picture of deceleration. The Atlanta Fed GDP nowcast for Q1 slowed further this week, now indicating an adjusted -0.5% growth rate for the quarter, with another month of data remaining to close out the quarter. While domestic demand (excluding external factors) remains positive, its pace has also moderated.
Outlook for the week ahead; US tariff announcement, US non-farm payrolls & ISM surveys, Fed Chair Powell speech, RBA meeting, global S&P PMI’s Mar
The focus this week is likely to remain firmly on the tariff announcement expected on 2 Apr and its implications for growth and inflation. The details will be important including the scope of tariffs, expectations of further tariff announcements, and general timing for actions.
On the data flow, the US non-farm payrolls and labor market report for Mar will take center stage this week and will be crucial for assessing consumer fundamentals and implications for the consumption outlook. There will also be several important Fed speeches this week, including Fed Chair Powell, Vice Chair Jefferson, and Governor Cook, all speaking about the economic outlook.
Key factors to watch this week;
US non-farm payroll growth is expected to slow in Mar.
- Non-farm payrolls are expected to increase by +139k in Mar, edging down from +151k in Feb. As always, the direction of revisions will be important.
- The unemployment rate is expected to be unchanged at 4.1% in Mar.
- The average workweek is expected to increase to 34.2 hours/week.
- Job openings for Feb are expected to slow only slightly to 7.73m from 7.74m in Jan.
- The Challenger Job Cut Announcement survey for Mar will be closely watched. The Feb report showed a marked increase of 172k job cut announcements led by, but not limited to, government job cuts.
- Initial claims are expected to edge slightly higher to +227k for the week ending 29 Mar.
Other US data will also provide input into the growth trajectory for the final month of Q1;
- The US ISM surveys for Mar are expected to show a slowdown in manufacturing activity while services activity is expected to continue expanding at a moderate pace.
- Factory Orders for Feb are expected to increase by +0.5%, down from +1.7% in Jan.
There will be several US Fed speeches this week. The key speeches will be US Fed Chair Powell (Fri), Vice Chair Jefferson, and Governor Cook, all speaking on the economic outlook.
The RBA will meet this week and is expected to keep policy settings unchanged with the cash rate target at 4.10%. At the prior meeting, the RBA Board reduced the cash rate for the first time in this cycle, noting increased confidence in inflation progress. Yet, the Board remained cautious on the prospects of further easing. Guidance from this meeting will be important.
Other important data out this week includes;
- The latest ECB minutes of the latest meeting.
- The prelim Euro area CPI for Mar is expected to ease to +2.2% over the year and remain unchanged at +0.4% over the month. Core CPI is expected to ease to +2.5% over the year in Mar, down from +2.6% in Feb.
- Canada’s labour market report for Mar will be important from the perspective of gauging progress on the current recovery and any impact so far from trade and tariff announcements. Employment growth is expected to remain low at a net +9.9k for the month. The unemployment rate is expected to increase to 6.7%.
- The broader suite of global PMIs for Mar will be released this week. The flash PMIs for Mar showed broadly that services output had continued to grow and build on the first two months of the year, whereas manufacturing output continued to contract – and to a greater extent than in the prior two months.
This week, the US Treasury will auction and/or settle approx. $688bn in ST Bills, Notes, Bonds, and TIPS, raising $121bn in new money.
QT this week: Approx $21bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $19bn of Notes & Bonds will be redeemed and roll off the fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Mar 24, 2025
Key events this week – US PCE inflation, Prelim PMIs March
Recap from last week: Central banks adopt a cautious approach amid an uncertain outlook.
Central bank decisions last week underscored a cautious approach to the near-term policy outlook amid rising uncertainty and a focus on persistent inflation.
The FOMC kept interest rate settings unchanged, as expected while reducing the cap on QT. The FOMC signaled it would stay on hold and was in no rush to adjust policy while growth and labor market conditions remain solid, as it waits for greater clarity on the Trump policy initiatives. The Fed Chair noted the unusually high degree of uncertainty in the near-term outlook ahead of the new policy details. For now, new projections show that inflation is expected to be more persistent with core PCE inflation projected to increase to +2.8% through 2025. However, as Powell noted, the current ‘base case’ is that core inflation is expected to fall back to 2.2% in 2026. Growth was revised lower this year, and closer to trend growth through the projection period. The unemployment rate is expected to be stable through the projection period, though rising from 4.1% currently to 4.4% by the end of this year as growth slows. Rate cut expectations narrowed, with the median remaining at two cuts for this year. The FOMC participants mirrored the elevated uncertainty with most marking up the risk weighting around their projections (source: SEP March 2025).
Powell also noted that rising uncertainty had affected sentiment among businesses and consumers, and it was not clear how this would translate into weakness in “hard data”. So far, the “hard data” has shown little effect from this falling sentiment – and it could be too early to tell. US data last week was mixed; retail sales were soft again in Feb, housing data added positively to residential investment, and manufacturing output growth was stronger than expected in Feb – possibly due to higher orders ahead of expected tariffs. The first regional manufacturing surveys for Mar showed moderating orders, output, and growth expectations, with mostly stable employment conditions. Initial jobless claims remained low/steady.
The BoE kept policy settings unchanged, remaining restrictive to “squeeze out persistent inflationary pressures”. The BoE focused on inflation risks in its deliberations – a shift from its last meeting given the higher-than-expected uptick in inflation in Feb to +3%, from +2.5% in Jan. The Committee projected that CPI inflation was still expected to rise to around 3¾% in Q3 2025. This firmer inflation appears against a backdrop of slowing growth and rising uncertainty over the impact of global trade policy since the last meeting. The minutes of the meeting indicated that while the underlying disinflation process was expected to continue, the BoE had taken a more cautious approach to its guidance;
There was no presumption that monetary policy was on a pre-set path over the next few meetings. Source: BoE Meeting Minutes, 20 Mar 2025
The BoJ kept policy settings unchanged. The assessment of current conditions and the economic outlook signaled that the BoJ is likely to maintain its stance on a gradual approach to policy normalization. Wage negotiations are producing continued stronger results, and inflation has been maintained against a backdrop of accommodative financial conditions. The Japanese National CPI data for Feb eased by less than expected, even as government energy subsidies resumed. The core CPI excluding fresh food and energy has consistently edged higher since mid-2024 and increased by more than expected to +2.6% in Feb. The BoJ Governor did express concern over whether rising uncertainties over US trade and tariff policy would impact or hinder the progress of its goals;
Ueda said last week he was “very much” concerned about the global economy in light of trade tensions. Source: Bloomberg, 19 March 2025
Outlook for the week ahead; US PCE inflation, prelim S&P PMIs for Mar, and CPI for Aus and the UK.
This week’s data will again be closely watched for signs of impact from rising uncertainty, tariffs, trade policy, and/or US spending cuts. The focus this week is on the Fed-preferred US PCE inflation data for Feb as well as the prelim S&P PMIs for Mar. US spending, income, and prelim trade and inventory data will provide a further update on the US Q1 growth run rate. Additional inflation reports for Aus, the UK, and Japan will also be important this week.
After last week’s relative calm, the US tariff announcements expected on 2 Apr, next week, could lead to a resumption of headline risk in the lead-up to that event.
Key factors to watch this week;
US PCE inflation for Feb is expected to firm. The FOMC press conference opening statement highlighted expectations for a firmer reading this month – those expectations are referenced here.
- Headline PCE inflation is expected to be +2.5% over the year in Feb, unchanged from +2.5% in Jan. This would mean that PCE inflation over the month increased by +0.3% in Feb, also unchanged from +0.3% in Jan.
- Core PCE inflation is expected to increase to +2.8% in Feb, up from +2.65% in Jan. This acceleration suggests that the monthly core PCE rate increased by at least +0.35% in Feb, up from +0.3% in Jan. The latest median projection from the FOMC has core PCE at +2.8% by the end of the year.
US data this week will provide a further update on spending, income, and the Advance Economic Indicators report for Feb including international trade in goods and inventories.
- US personal spending for Feb is expected to increase by +0.6%, up from -0.2% in Jan.
- Personal income is expected to increase by +0.4% in Feb, down from +0.9% in Jan.
- The advance goods trade balance (deficit) will be closely watched after rising notably in Jan to – $153.3bn, which had accounted for much of the downshift in the Atlanta Fed growth nowcast for Q1. Growth in inventories is expected to ease to +0.4% from +0.8% in Jan.
- The advance Durable Goods Orders report for Feb is expected to fall -0.7% after increasing by +3.2% in Jan.
- We continue to monitor the initial claims data. So far, claims remain low, and little changed. Claims are expected to edge slightly higher to 225k last week, from 223k in the week prior.
- The final revision of US Q4 GDP is expected to confirm the annualized growth rate of +2.3% at the end of last year.
A range of CPI reports for Aus, the UK, and Japan will be important;
- The Aus monthly CPI series for Feb will be released this week and, while it’s not the RBA preferred report, will still be important ahead of the RBA meeting next week. Headline inflation is expected to remain unchanged at +2.5% over the year.
- UK CPI will be released this week and will be important in the context of the firmer-than-expected growth in Jan. Headline CPI in Feb is expected to ease to +2.9% from +3% in Jan. Core CPI is expected to increase +3.6% in Feb, slightly lower than the +3.7% in Jan.
- The latest Tokyo CPI data for Mar will provide an early guide on Japanese inflation. The Core CPI ex fresh food is expected to be unchanged at +2.2% in Mar.
The prelim S&P PMI’s for Mar will be released early this week and should provide an update on the outlook for orders, output, prices, employment, and any follow-through on weaker sentiment.
This week, the US Treasury will auction and/or settle approx. $452bn in ST Bills and FRNs, with a net paydown of -$23bn. The US Treasury will also auction the 2-Year, 5-Year, and 7-Year Notes this week – and will settle on 31 Mar.
QT this week: Approx $3.2bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Mar 17, 2025
Recap from last week: While CPI eases, tariff policy continues to sour the growth and inflation outlook.
The Feb US CPI report showed further progress on disinflation, with both headline and core CPI slowing more than expected. Headline inflation eased to +2.8% in Feb, while core CPI slowed to +3.1% in Feb, the slowest so far in this part of the cycle. These results, together with the slower monthly increases compared to last year, eased concerns about a repeat of the 2024 strong beginning-of-the-year seasonal inflation.
The underlying drivers of disinflation have flipped in the last few months. The deceleration in annual CPI in Feb was instead led mostly by core services CPI categories with shelter/owners’ equivalent rent and transportation services making the largest contribution to slower inflation. Over the last few months, core goods have no longer provided a deflationary offset.
The PPI also came in lower than expected in Feb, slowing to +3.2% in Feb, from +3.7% in Jan. However, the categories that feed into the Fed-preferred PCE inflation measure indicate that the PPI will likely make a firmer contribution to the PCE result for Feb. So far, the Cleveland Fed inflation nowcast for both headline and core PCE in Feb is +0.19% over the month, which is still marginally lower than the +0.24% core PCE recorded in Feb 2024.
While the CPI report is good news, it is a little backward-looking in the current context. Consumers, businesses, and policymakers have become increasingly focused on an inflation and growth outlook that includes tariffs and cuts to US government spending.
The US Michigan consumer sentiment report (prelim for Mar) showed that the combined effect of policy announcements has weighed further on consumer sentiment this month, with inflation expectations spiking higher, and expectations of unemployment increasing. Will the uncertain outlook prompt more cautious spending patterns? Early signs suggest that it might. One example is Delta Airlines’ cut to its sales and profit guidance for Q1, citing a recent pullback in demand across close-in, corporate, and government bookings.
Recent business surveys have also been impacted by the tariff, trade, and spending cut announcements. The latest addition was the NFIB small business survey for Feb, which showed a fall in sentiment, though still elevated, from rising caution over increased uncertainty in the outlook while reporting more widespread increases in input prices.
The Bank of Canada (BoC) meeting last week underscored the key policy challenge facing policymakers amid tariffs and a potential trade war – deriving the policy direction that balances the “downward pressure on inflation from slower growth or a weaker economy with the upward pressure on inflation from higher costs”.
“Monetary policy cannot offset the impacts of a trade war.” Source: BoC Monetary Policy Decision, 12 Mar 2025
The BoC cut rates for the seventh consecutive meeting. For the moment, inflation in Canada remains near the 2% target, however, the BoC expects growth to slow in Q1 as trade concerns weigh on sentiment and activity. The BoC outlook remained negative, noting that “we ended 2024 on solid footing. But we’re now facing a new crisis”.
Outlook for the week ahead; FOMC, BoJ, BoE, and SNB meetings, US data; growth outlook.
The focus for the week ahead is on key central bank meetings—FOMC, BoJ, BoE, and SNB —along with crucial US growth data. These meetings and US data will now be viewed through the lens of a growth outlook that has deteriorated in recent weeks due to the evolving tariff and trade policy landscape.
It’s becoming increasingly clear that the Trump administration views tariffs not just as negotiating tools, but as instruments for broader restructuring. Furthermore, talk of ‘detoxing’ and ‘transitioning’ the economy through reduced govt spending, coupled with the assertion that ‘corrections are healthy,’ suggests a bumpy period ahead. Uncertainty is weighing on businesses, consumers, and policymakers. The critical question now is: How substantial will the impact be from tariffs, trade policy, government spending cuts, and just rising uncertainty? This week’s data flow will be closely watched, though the combination of Feb and early Mar survey data may still only offer a partial view of any impacts.
Key factors to watch this week;
Key central bank decisions will be in focus this week. Last week, the BoC cut rates on the expectation of weaker growth in Q1 due to trade uncertainties. In contrast, the FOMC, BoE, and BoJ are expected to keep policy unchanged at their meetings this week.
- The FOMC is expected to keep policy settings unchanged. In his last speech before the blackout period, Fed Chair Powell reiterated that the Fed isn’t in a hurry to shift policy, as long as growth holds up, and wants to see the net effect of Trump’s policy agenda on trade, immigration, fiscal policy, and regulation. The FOMC will submit its latest growth, inflation, labor market, and policy path projections. Any shifts in the direction of growth and inflation projections could provide some signal for whether the Fed outlook has changed. In the previous minutes, there had also been some discussion on pausing QT in the future.
- The BoJ is expected to keep its policy rate unchanged, after increasing rates at the last meeting.
- The BoE is also expected to keep its policy rate unchanged at this meeting. The BoE cut its benchmark rate at its last meeting, following a “gradual and cautious” path of rate reductions. While growth had been a little weaker than expected, the Committee aimed to maintain a restrictive stance as inflation risks subsided further.
- The SNB is expected to cut its benchmark rate by 25bps.
Key data this week will provide a more robust update on the US growth trajectory so far in Q1. Currently, the Atlanta Fed GDP Nowcast indicates that growth has slowed early in Q1.
- US retail sales for Feb are expected to rebound by +0.6% over the month, after falling by -0.9% in Jan. The Jan retail control group fell by -0.8% – this is the ,measure that feeds into the GDP result. In contrast, the Chicago Fed US retail sales nowcast suggests a downside surprise of -0.8% in Feb, with the Jan result revised up to -0.4%.
- US industrial production is expected to slow to +0.2% in Feb from +0.5% in Jan.
- Housing starts for Feb are expected to lift slightly to an annualized pace of 1.38m in Feb from 1.366m in Jan. Building permits are expected to slow to 1.45m in Feb from 1.47m in Jan. Amid this lackluster activity in new permits and housing starts, the weekly mortgage applications have been increased notably over the last two weeks (mostly refi’s, but also purchases) given the fall in mortgage rates.
- The first US regional manufacturing surveys for Mar will be released this week and should provide some insight into any changes in sentiment and activity amid the uncertainty over trade and tariff policies.
- We continue to monitor the initial claims release. So far, the trajectory of claims remains little changed. This week, claims are expected to be 222k, up slightly from 220k in the prior week.
Key data outside of the US;
- The Aus labour market report for Feb will be released this week, ahead of the next RBA meeting in several weeks. Employment growth of +30k is expected to keep the unemployment rate unchanged at 4.1%.
- Canada’s CPI for Feb is expected to edge slightly higher. The BoC noted some higher inflation effects due to the end of the GST pause that was implemented over the holiday period. Headline CPI is expected to increase to +2.1% in Feb from +1.9% in Jan. The core trimmed-mean and median inflation rates are expected to remain around +2.7%.
- Japanese National CPI for Feb will be released after the BoJ meeting this week. The BoJ preferred measure is core CPI ex fresh food, and this is expected to ease over the year from +3.2% in Jan to +2.9% in Feb.
This week, the US Treasury will auction and/or settle approx. $591bn in ST Bills, Notes, and Bonds, with a net paydown of -$23bn. The US Treasury will also auction the 10-Year TIPS and 20-Year Bond this week – both will settle on 31 Mar.
QT this week: Approx $3.5bn of ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $6bn in Notes and Bonds will mature and will be redeemed and roll-off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
