Regime Change

March 11, 2025
6 min read

Regime Change

  • Soft US economic data and encouraging Eurozone fiscal developments have shifted the growth outlook advantage away from the US to other advanced economies. This is a cyclical drag on USD.
  • The US January JOLTS data and February NFIB small business survey are today’s highlights.
  • Germany’s Greens ready to negotiate but not about to give a blank check for government spending. A deal this week is likely.

US growth concerns and tariffs uncertainty are weighing on financial market risk sentiment. Global equity markets are down, led by a plunge in US stocks. 2-year Treasury yields fell to a five-month low at 3.83% as markets dialed-up odds of Fed easing. Fed funds futures imply 85bps of cuts over 2025 vs. 70bps Friday. USD is trading heavy against all most major currencies and has erased all gains since President Donald Trump's November 5 election victory.

Our base case is the US economy remains in a good place and going through a soft patch. The Atlanta Fed Q1 GDPNow model is currently tracking at -2.4% SAAR but adjusted for the unusual surge in nonmonetary gold imports the model would be tracking at 0.4% SAAR. Meanwhile, the New York Fed Staff GDP Nowcast for Q1 points to growth of 2.7% SAAR vs. 2.9% on February 28.

Importantly, the US labor market is broadly in balance suggesting the risk of a recession is low. The January JOLTS data is the focus today (2:00pm London). Job openings are expected at 7600k vs. 7600k 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 job openings rate fell to 4.5% in December and stands at the threshold where a sharp rise in the unemployment rate becomes likely.

The US February NFIB small business optimism index is up next (10:00am London). Headline is expected to dip 1.8 points to 101.0, consistent with a modest slowdown in economic activity. Pay attention to the hiring plans index for a timely read on labor demand. In January, small business hiring plans fell 3 points to 15.0 but remained above the long-term average of 11.0.

Bottom line: The recent batch of weak US economic data and encouraging Eurozone fiscal developments have shifted the growth outlook advantage away from the US to other advanced economies. This regime change is a cyclical drag on USD.

GERMANY

EUR/USD is firmer near a four-month high at around 1.0880. Germany’s CDU/CSU and SPD coalition are in high-stakes negotiations with the Green party to get the draft debt package passed in the current parliament. Germany's new parliament is set to convene by March 25. As part of a counterproposal, the Greens want to raise the threshold for defense spending exemptions from debt rules to 1.5% of GDP compared to 1.0% in the current plan. The CDU/CSU and SPD coalition need the support of the Green party to have the required two-thirds majority for a constitutional amendment.

As a background, the German government could invest as much as €1 trillion over the next decade. The fiscal package introduced last week includes €500 billion for infrastructure spending and a special measure to amend the constitution to exempt defense spending above 1% of GDP from the constitutional debt brake. To appreciate the magnitude of this proposal, Germany invested €1.5 trillion over two decades following the reunification of East and West Germany.

JAPAN

USD/JPY is drifting lower on broad USD weakness. Japan’s final Q4 real GDP print was revised 0.1pts lower to 0.6% q/q on weaker private demand activity. Private demand fell -0.3% q/q in Q4 compared to a preliminary estimate of -0.1%. The sharper decline was driven by residential investment which dropped -0.2% q/q from an initial read of 0.1%. Household consumption was flat from an initial estimate of 0.1% while non-residential investment rose 0.6% q/q from an initial estimate of 0.5%. Going forward, upside risk to wage growth supports the moderate increasing trend in private demand.

AUSTRALIA

AUD/USD is consolidating above recent lows. Australia’s February NAB business survey was mixed and does not move the dial on near-term RBA rate expectations. Business conditions rose 1 point to 4 while business confidence fell 6 points to -1 largely reversing January’s improvement. The employment sub-index edged down 1 point to 4 but remains above long-term average of around 3.0 indicative of encouraging labor market conditions. The RBA signaled it will pay particular attention to labor market development to guide future policy decision. Cash rate futures continue to imply almost 75bps of easing in the next twelve months with the next 25bps cut priced-in for May.

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

1 of 2

2 of 2