The dollar came under broad-based pressure last week. The Scandies and the euro outperformed while the dollar bloc and yen underperformed. Ongoing concerns about the U.S. economic outlook contributed to the dollar selling, as did several rounds of back-tracking by the U.S. on tariffs. That said, this week’s inflation data is likely to take a back seat to the JOLTS data. The Fed blackout period has begun but Chair Powell left us with the same cautious message he’s been giving since the January FOMC meeting.
AMERICAS
Tariffs are due this week. The 25% tariff on all steel and aluminum imports into the U.S. will go into effect Wednesday. Last Friday, President Trump also warned that reciprocal tariffs on Canadian lumber and dairy products could come at any time rather than the April 2 data that’s been put forth. Despite the back and forth, more tariffs are coming and that will make the Fed’s job that much harder.
Indeed, Chair Powell gave us the definitive Fed view last Friday. He maintained his cautious stance, noting “Despite elevated levels of uncertainty, the U.S. economy continues to be in a good place. We do not need to be in a hurry, and are well positioned to wait for greater clarity.” Powell acknowledged the potential impact of Trump policies but noted “While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high.” The pessimists might call this "whistling past the graveyard" However, it's clear from the latest Beige Book that the Fed does not yet see much impact from Trump policies. Of course, that can change quickly but for now, the Fed really feels that it can wait and see. We expect a neutral hold this month in order to maintain maximum flexibility in case the data go south quickly.
JOLTS data Tuesday have taken on greater importance. Job openings are expected at 7.665 mln vs. 7.600 mln in December. Job openings have declined but the ratio of job openings to unemployed remains strong above 1. Moreover, layoffs have remained low but may not yet reflect the recent impact of the Department of Government Efficiency (DOGE) actions. Of note, the openings rate fell to 4.5% in December and stands at the threshold where a sharp rise in the unemployment rate becomes likely. Stay tuned.
February inflation data come into focus. CPI will be reported Wednesday. Headline CPI is expected at 2.9% y/y vs. 3.0% in January and core CPI is expected at 3.2% y/y vs. 3.3% in January. The Cleveland Fed’s Nowcast model forecasts headline and core at 2.8% y/y and 3.2% y/y, respectively. Watch out for super core CPI (core services less housing), a key measure of underlying inflation. In January, super core CPI increased 0.8% m/m vs. 0.2% in December, the biggest monthly rise in a year that kept the y/y rate sticky at 4%.
PPI will be reported Thursday. Headline PPI is expected at 3.2% y/y vs. 3.5% in January while core PPI is expected at 3.5% y/y vs. 3.6% in January. Watch out for PPI ex-trade, transportation, and warehousing as it feeds into the PCE. In January, this measure fell to 4.1% y/y, the lowest since February 2024.
February New York Fed survey of consumer expectations Monday. In January, the survey reinforced the case that progress on inflation is stalling well above 2%. Inflation expectations were unchanged at 3.0% at both the one- and three-year-ahead horizons, while median five-year-ahead inflation expectations rose 0.3 ppt to 3.0%.
Q4 household net worth will be reported Thursday. In Q3, net worth increased by roughly $4.8 trln, driven by higher equity holding after rising $2.8 trln in Q2. The net worth-to-disposable personal income ratio rose to 778% of GDP from 761% of GDP in Q2, just under its all-time high at 833% of GDP in Q1 2022. Strong household balance sheets are a key factor underpinning solid consumption growth.
University of Michigan preliminary March consumer sentiment will be reported Friday. Headline is expected at 63.5 vs. 64.7 in February, driven by drops in both current conditions and expectations to 64.5 and 63.5, respectively. Attention will be on inflation expectations, as last month’s data indicated they are becoming somewhat unanchored. In February, one-year inflation expectations unexpectedly soared 1 ppt to 4.3%, the highest level since November 2023, while expectations 5 to 10 years out rose 0.3 ppt to 3.5%, matching the April 1995 high. Both are expected to ease a tick in March but we see upside risks.
Canada’s Liberal Party chose a new leader Sunday. As of this writing, the results have not yet been announced. Former Bank of Canada Mark Carney is favored to win over former Finance Minister Chrystia Freeland. Once parliament reopens on March 24, the new Liberal leader will no doubt face a vote of no confidence that will trigger snap federal elections. However, it’s worth noting that recent polls have shown a resurgence in support for the Liberals as the Conservative Party’s ties to President Trump are shaping up to be a potential liability amongst the voters due to tariffs and deteriorating relations between the two nations.
Bank of Canada meets Wednesday and is expected to cut rates 25 bp to 2.75%. However, the analyst community is split as nearly a quarter that were surveyed by Bloomberg look for no change. We had expected the BOC to pause easing in March because core inflation (average of trim and median CPI) is tracking above the BOC’s Q1 projection of 2.5%. However, Canada’s poor February labor market report and the drag to growth from tariffs uncertainty both leave plenty of room for the BOC to deliver a rate cut this week. The BOC’s next Monetary Policy Report with updated forecasts is due in April, when 2027 will be added to the forecast horizon.
EUROPE/MIDDLE EAST/AFRICA
Plenty of ECB speakers are due throughout the week. Their comments could help shape rate expectations for the next meeting April 16-17. After reports that ECB officials expect tough negotiations over another cut, markets see only 60% odds of a 25 bp cut next month. Looking ahead, the swaps market is still pricing in nearly 75 bp of easing over the next 12 months. Nagel speaks Monday. Rehn speaks Tuesday. Simkus, Lagarde, Villeroy, Escriva, Nagel, Lane, and Panetta all speak Wednesday. Rehn, Guindos, Makhlouf, Holzmann, and Villeroy speak Thursday. Escriva (twice) and Cipollone speaks Friday.
March Sentix investor sentiment will be reported Monday. Eurozone sentiment is expected at -9.3 vs. -12.7 in February. We see upside risks given the game-changing fiscal stimulus that is being pursued by Germany. On the other hand, we see downside risks to the U.S. reading given recent softness in the data as well as the unpredictable policy outlook.
U.K. data dump comes Friday. January GDP, IP, services, and construction will all be reported. GDP is expected at 0.1% m/m vs. 0.4% in December. Risks are skewed to the upside because of the solid increase in January retail sales volume. For reference, the Bank of England (BOE) projects Q1 growth at 0.4%. Elsewhere, IP is expected at -0.1% m/m vs. 0.5% in December, services index is expected at 0.1% m/m vs. 0.4% in December, and construction is expected at -0.1% m/m vs. -0.2% in December. The BOE is expected to pause easing at its next March 20 meeting. Over the next 12 months, the swaps market is pricing in 50 bp of easing consistent with the BOE’s guidance for “a gradual and careful approach” to further rate cuts.
Norway reports February CPI data Monday. Headline is expected at 2.6% y/y vs. 2.3% in January while underlying CPI is expected at 2.9% y/y vs. 2.8% in January. If so, inflation would largely be in line with the Norges Bank’s Q1 forecast. At its January meeting, the Norges Bank kept rates steady at 4.5% and reiterated that “the policy rate will most likely be reduced in March.” Updated macro forecasts will come at that meeting. Markets have virtually fully priced in the start of an easing cycle in March and a total of 50 bp of easing over the next 12 months.
ASIA
Japan highlight will be January cash earnings data Monday. Nominal earnings are expected at 3.0% y/y vs. 4.4% in December and real earnings are expected at -1.6% y/y vs. 0.3% in December. The less volatile scheduled pay growth for full-time workers is forecast at 2.9% y/y vs. 2.8% in December. Of note, biggest trade union group Rengo is demanding larger wage hikes. Members are asking an average wage increase of 6.09% this year, up from last year’s 5.85%, seeking more than 6% for the first time in more than three decades. Faster wage growth is an upside risk to Japan’s inflation outlook and could force the Bank of Japan to normalize rates by more than is currently priced in. The swaps market is pricing in 75 bp of tightening over the next two years that would see the policy rate peak near 1.25%.
January current account data will also be reported Monday. An adjusted surplus of JPY2.00 trln is expected vs. JPY2.732 trln in December. However, the investment flows will be of more interest. The December data showed that Japan investors were modest net buyers of U.S. bonds (JPY17 bln) for the second straight month. Japan investors turned net buyers (JPY57 bln) of Australian bonds after three straight month of net selling and also turned net buyers of Canadian bonds (JPY71 bln) three straight months of net selling. Investors turned net sellers of Italian bonds (-JPY533 bln) after one month of net buying. Overall, Japan investors turned total net sellers of foreign bonds (-JPY1.326 trln) after one month of net buying. Even with the return to net selling, it’s still too early to say that Japan investors have stopped chasing higher yields abroad.
Q1 BSI business survey will be reported Wednesday. Conditions for large companies have improved in recent quarters indicative of a continued modest recovery in real GDP growth.
Australia reports February NAB business survey Tuesday. The focus will be on the Business Conditions Employment sub-index because the RBA signaled it will pay particular attention to labor market developments to guide its future policy decision. In January, the employment index edged up 1 point to 5.0 and remains above the long-term average of around 3.0. The market is pricing in almost 75 bp of easing over the next 12 months, with the next 25 bp cut about 75% priced in for May as heightened trade tensions weighs on the global economic outlook.
