The Week Ahead
A quiet week for key data releases coincides with a Fed blackout period ahead of next week's FOMC meeting. China’s retaliatory tariffs on US agricultural products went live this morning. Later today ECB's Nagel is scheduled to speak. Ukrainian President Zelenskyy is flying to Saudi Arabia to see Crown Prince bin Salman which had initially been planned for last month but delayed due to the meeting between Trump, Putin that was held in Riyadh on the 18th. Tuesday brings Japan's GDP, household spending and money stock figures, and US job openings data. China's "two sessions" political meetings should close, and ECB's Guindos will deliver remarks (speaking again on Thursday). The White House will present its agency restructuring proposal and layoff plans. Wednesday’s focus is Japan's PPI and the closely-watched US CPI report, followed by US PPI and initial jobless claims on Thursday. Friday features key eurozone economy CPI prints, and the Uni. of Michigan consumer confidence readings. Throughout the week, US lawmakers will be working on legislation to face a critical deadline to reach a spending agreement and avert a government shutdown on Friday, adding potential market volatility to an otherwise data-light calendar.
US data releases last week were broadly weaker than expected fuelling stagflation concerns. Following the weaker-than-expected US ISM print of 50.3 (prev. 50.9, exp. 50.7) the Atlanta Fed downgraded its growth expectations for Q1’25, to -2.4% (from -1.5%) by the end of the week. This reading was as low as -2.8% and was boosted by the stronger than expected ISM services Index. On Friday, the US employment report showed further weakness as non farm payrolls missed expectation of +160k jobs, coming in at +151K. The six-month average now stands at +191k, despite a 10k decline in federal employment following Trump's executive order freezing federal hiring. The unemployment rate ticked up to 4.1%, with labour-force participation falling from 62.6% to 62.4%. Average hourly earnings growth moderated to 0.3%mom and 4.0%yoy.
Markets experienced volatility through the week, the S&P Index fell 3.10%, rattled by tariff changes. Despite the market’s uneasiness regarding Trump’s whiplash decisions, Fed Chair Powell said that he remains unconcerned, adding that the US economy “continues to be in a good place”. The yield on the 10-year rose 9bps to 4.30% last week, amid Powell’s “wait-and-see” approach. The dollar fell every day last week over US growth concerns. The DXY Index closed the week 3.51% lower. Meanwhile, Brent crude fell 3.85%.
Elsewhere, China's two sessions continue with key policy announcements addressing economic concerns. The PBoC Governor confirmed potential monetary policy adjustments including RRR and interest rate cuts, though recent signals suggest a pivot toward structural tools rather than broad-based cuts, evidenced by the doubling of the re-lending quota for innovation and technology upgrades to RMB1tn. Finance Minister Lan Fo'an announced enhanced fiscal-monetary coordination with interest subsidy programs targeting both consumer and business loans, while the housing minister confirmed that part of the RMB4.4tn local government special bond issuance will fund housing inventory purchases for affordable housing and urban renewal projects. Of particular concern is China's PPI contraction of 2.2%yoy in February and the 0.7%yoy decline in CPI, underscoring persistent disinflationary pressures, highlighting the urgency for additional policy measures to support economic reflation.
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