Dust in the Wind

March 18, 2025
6 min read
  • Fading US growth outlook exceptionalism is the dominant financial market theme. Second-tier US economic data due today.
  • German lawmakers expected to back the massive fiscal stimulus package. German March ZEW survey up next.
  • Canada February CPI should leave the BOC room to ease policy further.

Dust in the Wind

USD is trading heavy near recent cyclical lows and US equity futures are down. JPY is underperforming all major currencies in line with the rally in Asian stocks and European equity futures. Fading US growth outlook exceptionalism is a drag on USD and points to further US equity market underperformance.

The Atlanta Fed GDPNow model estimates Q1 growth at -2.1% SAAR vs -1.6% on March 7 and -2.4% on March 6. Notably, the model’s forecast for Q1 real personal consumption expenditures growth declined from 1.1% to 0.4% following the mixed February retail sales report. The next GDPNow update is today while the model adjusted for foreign trade in gold will be updated on March 26.

US retail sales activity in February was mixed. Headline undershot expectation rising just 0.2% m/m (consensus: 0.6%) vs. -1.2% (revised down from -0.9%) in January reflecting a decline in autos and gasoline sales. But the retail sales control group which excludes volatile items surged 1.0% m/m (consensus: 0.4%) vs. -1.0% (revised down from -0.8%) in January, suggesting the consumer is holding up pretty well.

Today’s US February housing starts and building permits are unlikely to generate material financial market volatility. The data is expected to remain consistent with a subdued contribution from residential investment to economic activity. Residential investment added just 0.2pts to real GDP growth in Q4 after contracting in Q3 and Q2.

EUROZONE

EUR/USD rallied to new cyclical highs above 1.0950. Germany's outgoing lower house of parliament will vote today on the debt-funded defense and infrastructure spending package. The parliamentary session is set to begin at 9:00am London, with the vote expected by 12:00pm London.

As part of the deal reached Friday between conservative leader Friedrich Merz and the Green party, €100 billion of the planned €500 billion earmarked for infrastructure spending will be channeled to the government’s existing climate and transformation fund. It will also be extended to 12 years, instead of the planned 10. The agreement maintains the special measure to amend the constitution to exempt defense spending above 1% of GDP from the constitutional debt brake.

Overall, the German government could potentially invest as much as €1 trillion over the next decade. To appreciate the magnitude of this proposal, Germany invested €1.5 trillion over two decades following the reunification of East and West Germany. Germany’s big fiscal thrust, reduces the burden on the ECB to drive growth and bodes well for EUR.

The German March ZEW investor economic sentiment survey is due today (10:00am London). The expectations index is expected to improve to a three-year high at 48.3 vs. 26.0 in February, consistent with a recovery in Eurozone economic activity.

CANADA

USD/CAD is trading just below where it stood before the February 1 US executive order to impose duties on Canada. Canada’s February CPI print is the domestic highlight (12:30pm London). Headline inflation is expected at 2.2% y/y vs. 1.9% in January while core inflation (average of trim and median CPI) is anticipated at 2.75% y/y vs. 2.7% in January. The Bank of Canada (BOC) projects headline and core CPI inflation to average 2.1% and 2.5% over Q1, respectively.

Markets imply an additional 50bps of easing over the next 12 months and the policy rate to bottom at 2.25%. With headline inflation close to the 2% target, the BOC has space to bring down the policy rate below neutral settings to offset the drag to growth from the trade conflict with the US. The BOC’s neutral range estimate is between 2.25% to 3.25%. The April Monetary Policy Report will include an update to that estimate.

A recent Augus Reid Institute poll shows the governing Liberal Party – led by newly sworn-in Prime Minister Mark Carney – surging to a five-point vote intention advantage nationally after trailing against the Conservatives by a whopping 29 points in late December. According to the poll, support for the Liberals surged to 42%, the most since 2016 and enough to form a majority government.

Carney can call a snap election any day now or wait until Parliament returns on March 24, where he’s expected to face a vote of no confidence. If a snap election is called, Election Canada states that the campaign period must be at least 37 days and no more than 51 days, and election day must fall on a Monday, with certain limited exception.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction