AMERICAS
The markets are still digesting last week’s hold from the Fed. To us, the most noteworthy aspect of the decision was Powell’s insistence that tariff-related inflation would be transitory. While that remains to be seen, it appears that markets are giving Powell the benefit of the doubt, at least for now. When all is said and done, market pricing has remained steady, with three cuts still nearly priced in this year. Bostic and Barr speak today and are likely to stay on message.
Preliminary March S&P Global PMIs will be important. Manufacturing is expected at 51.8 vs. 52.7 in February, services is expected to remain steady at 51.0, and the composite index is expected at 51.3 vs. 51.6 in January. If so, the composite would fall for the third straight month to the lowest since April 2024, and would confirm that U.S. economic outperformance has likely ended for now. That said, markets put more weight on the ISM PMIs, which will be reported next week.
Chicago Fed reports February National Activity Index. Headline is expected at -0.17 vs. -0.03 in January. If so, the three-month moving average would fall to -0.01 vs. 0.03 in January but would remain well above the -0.7 threshold that typically signals recession. Yet recession fears continue to dominate U.S. market sentiment right now.
Canadian Prime Minister Carney has called a snap federal election for April 28. This was highly anticipated after Carney won the leadership race to replace Justin Trudeau. Two recent polls show Carney’s Liberal Party leading in voting intention nationally after trailing against Pierre Poilievre’s Conservative Party by a wide margin in late December. Leger Marketing has the Liberals at 42%, compared with 39% for the Conservatives. Augus Reid Institute also has the Liberals at 42% versus 37% for the Conservatives.
Mexico reports mid-March CPI. Headline is expected at 3.70% y/y vs. 3.81% previously, while core is expected at 3.58% y/y vs. 3.66% previously. Banco de Mexico then meets Thursday and is expected to cut rates 50 bp to 9.0%. At the last meeting February 6, the bank also cut rates 50 bp. It was a dovish cut as the bank said “The Board estimates that looking forward it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.” The swaps market reacted to the dovish signals and is now pricing in 175 bp of further easing over the next 12 months that would see the policy rate bottom near 7.75% vs. 8.5% before the February cut.
Chile central bank publishes its quarterly inflation report. Last week, the bank kept rates steady at 5.0% for the second straight meeting and noted “The overall background information at hand points to an inflationary outlook that continues to face significant risks, stressing the need for caution.” Despite the hawkish guidance, the swaps market is pricing in another 25 bp of easing over the next 12 months.
EUROPE/MIDDLE EAST/AFRICA
Eurozone reported mixed preliminary March PMIs. Headline manufacturing came in at 48.7 vs. 48.2 expected and 47.6 in February, services came in at 50.4 vs. 51.1 expected and 50.6 in February, and the composite came in at 50.4 vs. 50.7 expected and 50.2 in February. Looking at the country breakdown, the German composite came in at 50.9 vs. 51.1 expected and 50.4 in February while the French composite came in at 47.0 vs. 46.1 expected and 45.1 in February. Italy and Spain will be reported with the final PMI readings in early April. Bottom line: the ECB is unlikely to cut rates by more than is currently priced in, which is 50 bp over the next 12 months. This is EUR supportive. Holzmann, Makhlouf, and Escriva speak today.
U.K. reported mixed preliminary March PMIs. Manufacturing came in at 44.6 vs. 47.2 expected and 46.9 in February, services came in at 53.2 vs. 51.0 expected and actual in February, and the composite came in at 52.0 vs. 50.5 expected and actual in February. Bottom line: the solid pick-up in UK services growth momentum validates the Bank of England’s “gradual and careful approach” to further rate cuts.
Turkish capital markets regulator announced measures to support the local equity market. Late Sunday, it imposed a ban on short-selling and also relaxed some share buyback rules. These restrictions widen a previous ban on short-selling of the top 50 listed companies. In addition, the regulator reduced the minimum equity capital requirement for margin trading to 20% from 35% previously. These moves come after authorities formally charged Istanbul Mayor Ekrem Imamoglu with corruption after being detained last week by police. Imamoglu was seen mounting a formidable challenge to President Erdogan in the next election and so his arrest is chilling. The lira is likely to remain under pressure and will likely keep the central bank from cutting rates near-term. For those investors betting on a sustainable return to orthodoxy (both political and economic), these developments are very disappointing.
ASIA
Japan reported weak preliminary March PMIs. Manufacturing came in at 48.3 vs. 49.0 in February, services came in at 49.5 vs. 53.7 in February, and the composite came in at 48.5 vs. 52.0 in February. This was the lowest composite reading for this cycle and suggests underlying weakness in the economy. Meanwhile, Finance Minister Kato cautioned that “Japan has not overcome deflation.” Kato pointed out that rising prices are still being driven by a weak yen and high commodity costs rather than a virtuous cycle of rising wages and consumer demand. Bottom line: the Bank of Japan is unlikely to tighten the policy by more than is currently priced, which is a headwind for JPY. The swaps market continues to see only around 50 bp of tightening over the 12 twelve months.
Australia reported firm preliminary March PMIs. Manufacturing came in at 52.6 vs. 50.4 in February, services came in at 51.2 vs. 50.8 in February, and the composite came in at 51.3 vs. 50.6 in February. This was the highest composite reading since August and suggests some underlying strength in the economy. Importantly, the rate of private sector job creation increased for a third straight month amidst the solid rise in new work. This suggests that Australia’s poor February labor market data may be an outlier rather than a sign of broader weakness. The market continues to fully price in the next 25 bp cut in July, with 75% odds it will occur at the May meeting.
Singapore reported soft February CPI data. Headline came in a tick lower than expected at 0.9% y/y vs. 1.2% in January, while core came in a tick lower than expected at 0.6% y/y vs. 0.8% in January. At the last meeting January, the MAS loosened policy by reducing “slightly” the slope of its S$NEER trading band whilst keeping the width and midpoint unchanged. This was the first time it eased since 2020. The MAS cut its core inflation forecast for this year to 1-2% vs. 1.5-2.5% previously and noted that core “has moderated more quickly than expected and will remain below 2% this year, reflecting the return to low and stable underlying price pressures.” Next policy meeting is in April and we look for a hold as back-to-back moves seem unlikely. While the MAS does not have an explicit inflation target, low price pressures will allow it to loosen policy again in H2 if the economy slows too much.
