The Week Ahead
Trade rhetoric will once again absorb market focus given the huge moves witnessed last week. US quarterly earnings forecasts will also be of interest. Later today we will hear from the Fed’s Harker on the role of the Fed, and Bostic speaks about monetary policy. China's Xi Jinping set off for his Vietnam, Malaysia and Cambodia trip earlier today as he looks to strengthen regional economic ties. Eurozone ZEW survey and industrial production prints, UK employment figures, and the US empire manufacturing reading are due on Tuesday. China’s GDP, property prices, retail sales and industrial production prints kick-starts Wednesday. We also have UK CPI, and US retail sales, industrial production and business inventories. We will hear from the Fed’s Powell, Schmidt, Logan and Hammack. The ECB rate decision takes centre stage on Thursday, followed by Lagarde’s news conference. On Good Friday, a market holiday across many markets, we will hear from the Fed’s Daly.
Markets witnessed a tumultuous week amid Trump’s sweeping global tariffs coupled with China’s retaliation. Market sentiment whipsawed mid-week as Trump capitulated with a 90 day pause on tariffs; presumably given the sharp sell-off in the 30-year UST (which briefly spiked above 5% on Tuesday). The bond rout was also a result of global deleveraging, amid global economic uncertainty brought on by the lack of clarity on US tariffs on the rest of the world. There was also large issuance from the US Treasury: the 3-year sale on Tuesday was lacklustre, the following 10-year auction was well received and then all eyes were on the 30-year deal on Thursday, for which there was strong demand.
The US Treasury curve bear steepened last week, with the 2s30s spread widening to 123bps briefly on Wednesday, eventually closing the week at 91bps. The yield on the 10-year closed 50bps higher at 4.49%, while the S&P Index rose 5.70%. The dollar suffered a 2.84% fall, measured by the DXY Index, and has continued its descent this morning, currently, falling through the 100 level. Brent crude fell 1.25% last week, closing at $64.76pb, amid global growth concerns and prospects of a supply glut as OPEC+ increased production.
In terms of data, US inflation unexpectedly slowed in March, with the headline figure falling 0.1%mom in March and the core printed +0.1%. Year-on-year figures eased to 2.4% (from 2.8%) and 2.8% (from 3.1%), respectively. Factory gate prices also surprised to the downside, at -0.4%mom, the first decline since October 2023, resulting from a decline in energy costs. The PPI ex food and energy also eased to -0.1%mom. The PPI final demand reading, tracked by the Fed, cooled to 2.7%yoy, down from 3.2%. However, this backward-looking data was largely ignored by markets as global growth and stagflation fears mounted. Later the March University of Michigan sentiment readings tumbled as inflation expectations hit the highest levels since 1981. The 1-year inflation expectation jumped to 6.7%, while the 5-10 year was forecast at 4.4%.
Elsewhere, China's trade data released this morning revealed a strategic scramble to beat impending tariffs. Exports surged an impressive 12.4%yoy in March, exceeding market expectations, just before the April implementation of major US tariff hikes. While direct shipments to the US grew by nearly 9%, the record-breaking exports to Vietnam, Thailand, and other Southeast Asian nations suggest companies are actively rerouting supply chains to circumvent these punitive new trade barriers. The nation’s yield curve flattened last week as short-end yields declined, supported by improved interbank liquidity, expectations for additional Reserve Requirement Ratio cuts, and subdued inflation.
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