The dollar was mostly softer against the majors last week. SEK, NOK, and CAD outperformed while JPY, NZD, and EUR underperformed. This week will be key for the dollar. Not only do we get reciprocal tariffs on Wednesday, but we also get important U.S. data throughout the week that culminates in the jobs report Friday. We believe the data will surprise to the upside, which would give the dollar a much-needed boost.
AMERICAS
This is a huge week for the markets. Not only do we get a slew of key U.S. and eurozone data, but also perhaps some clarity on U.S. trade policy. There are also plenty of Fed speakers, culminating in Chair Powell’s speech Friday. Markets will be looking for confirmation that U.S. exceptionalism is over, but we are not so quick to bury this theme. Stay tuned.
Reciprocal tariffs are due Wednesday. The Wall Street Journal reported that this round of U.S. tariffs is poised to be narrower and more targeted than initially flagged. This is already a downgrade from the original plan for universal tariffs, which later morphed into a “reciprocal” proposal that would consider tariffs and non-tariff barriers that match those of our trading partners. Either way, Fed Chair Powell claim that tariff-related inflation will be transitory is sure to be tested by the markets.
Jobs report Friday will be the highlight. Bloomberg consensus for NFP at 138k while its whisper number stands at 91k. Given ongoing signs of strength in other labor market indicators, we lean more towards the former than the latter. For reference, payroll job gains averaged 168k per month over the past 12 months while the breakeven pace of job gains needed to keep the unemployment rate stable is between 80-100k. The unemployment is seen steady at 4.1%, which would track below the Fed’s 2025 projection of 4.4%, while average hourly earnings are expected to remain steady at 4.0% y/y. Overall, wage growth is running around sustainable rates consistent with the Fed’s 2% inflation target given annual non-farm productivity growth of around 2%. Ahead of the jobs data, ADP reports its private sector jobs estimate Wednesday and is expected at 120k vs. 77k in February.
February JOLTS data will be reported Tuesday. Openings are expected at 7.680 mln vs. 7.740 mln in January. Job openings have declined but the ratio of job openings to unemployed remains strong above 1. Moreover, there is no layoff spiral underway and the job openings rate is at a level consistent with a low unemployment rate. Fed research showed that the unemployment rate tends to rise faster when the job opening rate falls under 4.5%. March Challenger jobs cuts and weekly claims will be reported Thursday.
ISM PMIs will be closely watched. Manufacturing will be reported Tuesday and headline is expected at 49.5 vs. 50.3 in February. Keep an eye on prices paid, which is expected at 64.5 vs. 62.4 in February. The regional Fed manufacturing surveys suggest risk are skewed to the downside. Of note, the S&P Global manufacturing PMI dropped 2.9 points to a three-month low of 49.8 in March. Services will be reported Thursday and headline is expected at 53.0 vs. 53.5 in February. The regional Fed services surveys suggest risk are skewed to the downside. Of note, the S&P Global services PMI increased 3.3 points to a three-month high of 54.3 in March. Chicago PMI will be reported Monday and is expected to fall half a point to 45.0.
The growth outlook is diverging. The New York Fed Nowcast model estimates Q1 growth at 2.9% SAAR and Q2 growth at 2.6% SAAR and will be updated Friday. Contrast this with the Atlanta Fed GDPNow model, which estimates Q1 at a whopping -2.8% SAAR and will be updated Tuesday. When adjusted for trade in gold, it improves to -0.5% SAAR. Due to different statistical methodology, the Atlanta Fed model tends to react more to individual data points and is more volatile than the New York Fed model. Q1 draws to a close this week but we won’t get official GDP data until April 30.
Fed Chair Jay Powell gives keynote remarks on the economic outlook Friday. Powell will likely stick to the “no hurry to resume” easing script. We expect Powell to be grilled on his base case that the inflationary impact of tariffs will be transitory. A couple of regional Fed Presidents, notably Musalem and Barkin, have warned that the impact of tariff increases on inflation may not be entirely temporary. Others will weigh in on the debate. Barkin speaks Tuesday. Kugler speaks Wednesday. Jefferson and Cook speak Thursday. Barr and Waller also speak Friday.
Canada highlight will also be jobs data Friday. Consensus sees a 10k rise in jobs vs. 1.1k in February, while the unemployment rate is expected to rise a tick to 6.7%. The labor market outlook is not pretty. Heightened trade uncertainty has led many businesses to scale back their hiring, according to a Bank of Canada survey. Meanwhile, Governor Macklem warned that “depending on the extent and duration of tariffs, the economic impact could be severe. The uncertainty is already causing harm.” Markets are pricing in 33% odds of a follow-up 25 bp cut at the next meeting April 16 and 50 bp of total easing over the next 12 months.
Canada also reports March PMIs. S&P Global and Ivey readings have diverged but we suspect the latter will converge with the former.
EUROPE/MIDDLE EAST/AFRICA
Eurozone highlight will be March CPI data Tuesday. Headline is expected to fall a tick to 2.2% y/y and core is expected to fall a tick to 2.5% y/y. Ahead of that, Germany and Italy report CPI data Monday. Germany’s EU harmonized inflation is expected to fall two ticks to 2.4% y/y while Italy’s is expected to pick up a tick to 1.8% y/y. The country prints for March released last week point to downside risks. France came in two ticks lower than expected at 0.9% y/y and remained steady from February while Spain came in seven ticks lower than expected at 2.2% y/y vs. 2.9% in February.
The eurozone disinflationary process remains well on track. Recent comments from a handful of ECB policymakers suggests the decision to cut or a pause in April will be live. However, markets are pricing in about 85% odds of a 25 bp cut to 2.25% at the next meeting April 17. We fully expect the ECB to deliver a cut next month to preempt the drag to growth from U.S. tariffs. Still, looser fiscal policy in Germany and the EU’s military build-up plan lessens the need for the ECB to cut rates more than is currently priced in (roughly 50 bp of total easing over the next 12-months but with nearly 50% odds of another 25 bp cut).
ECB publishes its account of the March 5-6 policy meeting Thursday. At that meeting, the ECB delivered on expectations and cut rates 25 bp to 2.50%. Importantly, the ECB stressed that “monetary policy is becoming meaningfully less restrictive” suggesting the bulk of easing is done. President Lagarde noted “the decision was a consensus, and no one opposed that decision” and added that only Holzmann, a staunch hawk, abstained.
Final March eurozone PMIs will also be reported. Manufacturing will be reported Tuesday. Italy and Spain report for the first time and are expected to improve modestly to 48.0 and 49.9, respectively. Services and composite PMIs will be reported Thursday. Here too, Italy and Spain report for the first time and their services PMIs are expected to worsen modestly to 52.5 and 55.6, respectively.
U.K. March DMP inflation expectations will be reported Thursday. 1-year expectations are expected to pick up a tick for the second straight month to 3.2%, which would be the highest since March 2024. Of note, 3-year expectations remained steady at 2.7% in February. Both series remain above their series lows of 2.5% in October 2024 and will likely keep the Bank of England on a cautious easing path. The swaps market is pricing in 50 bp of total easing over the next 12 months. MPC member Greene speaks Tuesday.
Switzerland reports March CPI data Thursday. Headline is expected to pick up a tick to 0.4% y/y while core is expected to remain steady at 0.9% y/y. The Swiss National Bank projects headline CPI inflation to average 0.3% in Q1. At its last meeting March 19, the SNB cut rates 25 bp to 0.25% but hinted at little appetite for more easing. President Schlegel highlighted that “this rate cut has an expansionary impact…In that sense, the probability of additional policy easing is naturally lower.” Still, the swaps market is pricing in one last 25 bp cut over the next 12 months that would take the policy rate to zero.
Sweden reports March CPI data Friday. Headline is expected to fall half a point to 0.8% y/y, while the policy relevant CPIF is expected to fall three ticks to 2.6% y/y vs. the Riksbank’s forecast of 2.3%. CPIF ex-energy is expected to pick up two ticks to 3.2% y/y vs. the Riksbank’s forecast of 3.1%. At its last meeting March 20, the Riksbank kept the policy rate steady at 2.25% and signaled it was done easing. The market has come around to the Riksbank’s guidance and is no longer pricing in any more easing.
ASIA
Japan highlight will be Q1 Tankan report Tuesday. The large manufacturing index is expected to fall two points to 12, while the large manufacturing outlook is expected to fall four points to 9. Elsewhere, the large non-manufacturing index is expected to remain steady at 33, while the large non-manufacturing outlook is expected to rise a point to 29. Lastly, large all industry capex is expected at 3.1% vs. 11.3% in Q4. Overall, conditions for large companies have improved in recent quarters but have likely peaked. As long as inflation expectations remain well anchored, the BOJ is unlikely to raise rates more than is priced in. The swaps market continues to see a terminal rate of 1.25% over the next three years, with the next 25 bp hike seen in September.
Reserve Bank of Australia meets Tuesday and is expected to keep rates steady at 4.10%. At its last meeting February 18, the RBA cut rates 25 bp to 4.10% but signaled it’s not about to open the policy tap wide open. Governor Bullock stressed “I want to be very clear that today’s decision does not imply that further rate cuts along the lines suggested by the markets are coming.” The RBA indicated it will pay particular attention to labor market development to guide future policy decision. The poor February labor market data supports the case for the RBA to cut rates again at the May 20 meeting. The swaps market is pricing in around 70% odds of a cut then and becomes fully priced in for the July 8 meeting. The next Statement on Monetary Policy will be published at the May 20 meeting.
RBA publishes its semi-annual Financial Stability Review Thursday. In its last FSR back in September, the RBA pointed out that financial stability risks from the increase in housing loan arrears, company insolvencies, and commercial real estate (CRE) vacancy rates remain contained. Meanwhile, the quantity and quality of Australia bank capital has continued to improve and bank liquidity has been resilient.
New Zealand March ANZ business confidence will be reported Monday. In February, the business outlook survey was mixed. Business confidence rose 4 points to 58.4, while expected own activity eased 0.7 points to 45.1. Reported past activity, which has the best correlation to GDP, fell 3 points to 2.9 and is indicative of an uneven recovery in economic activity. 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%. This is roughly in line with market pricing.
