The dollar mixed last week despite its comeback Friday that erased some of its losses. JPY, SEK, and GBP outperformed while EUR, CAD, and NOK underperformed. Weak U.S. data and news of a potentially new virus discovered in Wuhan led to a bout of risk off trading Friday that led to a haven bid for USD. JPY, and CHF. The lack of any top-line data until late in the week suggests that risk off impulses could carry over into the early part of this week. If so, risk assets should remain under pressure.

AMERICAS

More cracks are appearing. After the weak January retail sales data, last week brought very weak preliminary February PMIs and plunging consumer confidence. Taken alone, each of these data points can be shrugged off. Taken together, a more worrisome view of the U.S. economy emerges. The unpredictability of the Trump administration policies has no doubt impacted the business sector in terms of delayed investment and hiring, but it now appears that consumers are reacting too.

University of Michigan consumer sentiment plunged in the final February reading to 64.7. This was the lowest since November 2023. The survey noted that “about 40% of consumers spontaneously mentioned tariffs this month, generally unfavorably, up from about 27% in January. Inflation expectations also rose sharply in the survey, which noted that “only 16% expect their income gains to outpace inflation. This is yet another sign that consumers are worried about the trajectory of prices.” The drop in January retail sales can no longer be viewed as a fluke.

Fed officials remain cautious about easing. While all officials remain confident that inflation will eventually fall to the 2% target, stubbornly high readings and rising inflation expectations are impossible to ignore. Furthermore, we believe the Fed will have to start acknowledging the growing risks to the economic outlook if the data continue to soften. Many Fed officials have at least acknowledged the potential impact of tariff and immigration policies, but they may have to comment more explicitly on how it affects policy. Two cuts are still priced in but the timing has been moved forward to July and Q1 2026. Logan, Barr, and Barkin speak Tuesday. Bostic and Barkin speak Wednesday. Schmid, Barr, Bowman, Hammack, Harker, and Barkin speak Thursday. Goolsbee speaks Friday.

January PCE data Friday will be the highlight. Headline is expected to fall a tick to 2.5% y/y, while core is expected to fall two ticks to 2.6% y/y. if so, headline would decelerate for the first time since September but remain well above the 2% target. Of note, the Cleveland Fed’s Nowcast model sees headline and core at 2.5% and 2.7%, respectively. Looking ahead to February, this model sees headline and core at 2.4% and 2.6%, respectively.

Personal income and spending will be reported at the same time. Income is expected at 0.4% m/m vs. 0.4% in December, while spending is expected at 0.2% m/m vs. 0.7% in December. Real personal spending is expected at -0.1% m/m vs. 0.4% in December. Spending data will be key and could confirm the weak retail sales data already reported.

Chicago Fed National Activity Index for January will be reported Monday. Headline is expected at -0.05 vs. 0.15 in December. If so, the 3-month moving average would rise to 0.03 vs. -0.13 in December. It would also be the highest since October 2022 and further above the -0.7 threshold that typically signals recession.

We get the first revision to Q4 GDP data Thursday. Growth is expected to be unchanged from the preliminary at 2.3% SAAR. As we have noted before, the details were much stronger than the headline suggests. Most importantly, personal consumption rose 4.2% SAAR while private domestic demand rose a still-strong 3.2% SAAR. Inventories subtracted -0.93 ppt from headline growth, which typically reverses in subsequent quarters as drawn down inventories are replenished. Estimates for Q1 growth are mixed, however, with the Atlanta Fed GDPNow model tracking at 2.3% SAAR and the New York Fed Nowcast model at 3.0% SAAR. Both models will be updated Friday.

February Conference Board consumer confidence will be reported Tuesday. Headline is expected at 102.7 vs. 104.1 in January. If so, it would be the lowest since September but remain within the same narrow range that’s held throughout the past two years. However, there are clear downside risks after the University of Michigan reading Friday. That said, positive real wage growth, encouraging labor demand, and strong household balance sheets suggest household spending will remain an important tailwind to GDP growth. Watch out for the labor index (jobs plentiful minus jobs hard to get). In January, that index fell to a five-month low at 16.2, suggesting consumers are less optimistic about future labor market conditions.

February Fed regional surveys will continue rolling out. Dallas Fed manufacturing will be reported Monday and is expected at 6.4 vs. 14.1 in January. Philly Fed services, Richmond Fed manufacturing (-3 expected) and services, and Dallas Fed services will all be reported Tuesday. Kansas City Fed manufacturing will be reported Thursday and services will be reported Friday. Lastly, Chicago PMI will be reported Friday and is expected at 40.3 vs. 39.5 in January.

Canada highlight will be December and Q4 GDP Friday. In December, Statistics Canada advance information indicated that real GDP by industry rose 0.2% m/m after falling -0.2% in November. The January GDP estimate will be published at the same time. Over Q4, the Bank of Canada projects real GDP by expenditure to rise 1.8% SAAR vs. 1.0% in Q3, driven by consumer spending, residential investment, and net exports. Business investment is expected to remain subdued while inventory destocking is forecast to be the main drag to growth in Q4. The BOC will likely pause easing at its next March 12 meeting, in part because core inflation (average of trim and median CPI) is tracking above its Q1 projection of 2.5%. Markets are pricing in roughly 35% odds of a 25 bp cut next months. Looking ahead, the swaps market is pricing in nearly 50 bp of total easing over the next 12 months that would see the policy rate bottom near 2.5%.

EUROPE/MIDDLE EAST/AFRICA

All eyes are on the German federal elections Sunday. As of this writing, the polls are still open and turnout seems to be running higher than previous elections. The first exit polls are due at 6:00 PM local time. A supportive EUR scenario is a solid CDU win, while a weak CDU win would likely weigh on EUR. A bearish EUR scenario is if AfD manages to win more than a third of the seats in parliament. See our election preview here.

Eurozone data highlight will be preliminary February CPI data at the country level. Spain kicks things off Thursday and its EU Harmonised CPI is expected to pick up a tick to 3.0% y/y. On Friday, Germany’s EU Harmonised inflation is expected to fall two ticks to 2.6% y/y, France’s is expected to fall six ticks to 1.2% y/y, and Italy’s is expected to rise a tick to 1.8% y/y. All these will provide clues for the eurozone CPI data due out next Monday.

European Central Bank publishes the account of its January meeting Thursday. At that meeting, the ECB delivered a widely expected 25 bp cut to 2.75%. President Lagarde confirmed that the decision to ease was unanimous. Lagarde also stressed there were no discussions about where to stop cutting rates and unlike in December, there was no debate “at all” about cutting rates by 50 bp.
Nagel and Schnabel speak Tuesday.

ECB inflation expectations for January will be reported Friday. 1-year expectations stood at 2.8% in December while 3-year expectations are expected to rise a tick to 2.5%. With longer-term inflation expectations still well anchored around 2%, the ECB has scope to ease further to support the sluggish growth outlook. The swaps market is pricing in 75-100 bp of easing over the next 12 months that would see the policy rate bottom between 1.75-2.00%.

February German IFO business climate will be reported Monday. The headline is expected to recover seven ticks to 85.8, with the current assessment expected to rise two ticks to 86.3 and expectations expected to rise eight ticks to 85.0. Risks are skewed to the upside given the better-than-expected improvement in the German PMI and ZEW investor economic sentiment survey. Germany GfK consumer confidence for March will be reported Wednesday and is expected at -21.5 vs. -22.4 in February.

There are no major U.K. data releases this week but Bank of England speakers will be plentiful. Lombardelli, Ramsden, and Dhingra speak Monday. Pill speaks Tuesday. Dhingra speaks Wednesday. Ramsden speaks Friday. Dhingra was one of the two dissents (Mann was the other) that voted for a 50 bp cut in February and so her comments will clearly lean dovish. The Bank of England is expected to pause at its March 20 meeting. However, the swaps market is pricing in 50 bp of easing over the next 12 months, with some odds of an additional 25 bp cut.

ASIA

Japan highlight will be February Tokyo CPI data Friday. Headline is expected to fall two ticks to 3.2% y/y, core (ex-fresh food) is expected to fall two ticks to 2.3% y/y, and core ex-energy is expected to pick up a tick to 2.0% y/y. If so, Tokyo core would decelerate for the first time since October and would bode well for the national CPI data out March 21. The market has adjusted its Bank of Japan expectations. The next hike is still priced in for September but the swaps market now sees around 50% odds of another 25 bp hike that would see the policy rate peak near 1.25% vs. 1.0% previously.

January real sector data Friday will also be important. Retail sales are expected at 3.9% y/y vs. 3.5.% in December, IP is expected at 3.0% y/y vs. -1.6% in December, and housing starts are expected at -2.8% y/y vs. -2.5% in December.

Australia highlight will be January CPI data Wednesday. Headline is expected to pick up a tick to 2.6% y/y. If so, it would accelerate for the third straight month to the highest since August. It’s worth noting, that the RBA focuses on the quarterly CPI prints because it’s less volatile and captures more items than the monthly CPI indicator. RBA Governor Bullock stressed that “the Board remains cautious about prospects for further policy easing.” Bullock noted that strong employment growth could be “signaling a bit more strength in the economy, which could delay or derail the disinflation process.” The swaps market is pricing in about 50 bp of easing over the next 12 months that would see the policy rate bottom around 3.60%.

Australia Q4 capex survey will be reported Thursday. Business investment is expected to rise 0.5% q/q vs. 1.1% in Q3. Declining business confidence points to downside risk to investment.

New Zealand highlight will be Q4 retail sales data Monday. Real retail sales are expected at 0.5% q/q vs. -0.1% in Q3, with consumption supported by lower interest rates. However, risks are skewed to the downside. The ANZ consumer confidence survey showed that the proportion of households thinking it’s a good time to buy a major household item, the best retail indicator, plunged 15 points to a three-month low of -16 in January.

February ANZ business confidence index will be reported Thursday. Business confidence eased to 54.4 in January but remains historically high. Reported past activity, which has the best correlation to GDP, suggests a modest recovery in economic activity is underway.

February ANZ consumer confidence index will be reported Friday. In January, consumer confidence dipped 4 points to a three-month low of 96.0 and remains below the long-run average of 113.7. The RBNZ has penciled in another 75 bp of easing over the next 12 months that would see the policy rate bottom at 3.00%. However, the swaps market is less dovish and is pricing in only 50 bp of further easing.