We are in for a quiet week on the economic data front with only Q1 GDP and economic activity data from China and employment data from Australia. Markets will focus on US – Iran negotiations and if Straight of Hormuz will be reopened. Additionally, earnings season starts with big banks, financials and Netflix reporting.
USD
US and Iran have agreed to a two week ceasefire. Mediator in negotiation talks will be Pakistan and talks will begin on Saturday April 11 in Islamabad. Main condition of ceasefire is reopening of Straight of Hormuz and Iran and until talks begin Iran will allow better passage for ships through the straight. This news triggered a massive risk on mood in markets with gold and equities jumping while USD and oil were down with WTI falling from $117 to $90 per barrel. US is basing its negotiations on their 15-point proposal while Iran is countering it with their 10-point proposal. One of the point of contention is that Iran wants no attacks on Lebanon while Israel has conducted attacks there. Hearing for Fed Chairman nominee Kevin Warsh has been delayed due to issues with paperwork.
ISM services PMI declined to 54 in March from 56.1 in February and by more than 54.9 expected. The number is still nicely in expansion signalling that US economy will grow at a solid pace but details are giving some concerning signs. New orders surged to 60.6 making it the highest reading in two years and that was the biggest positive. Prices paid jumped over 70, due to energy supply shock caused by US – Iran war, reaching new 36-month high. Business activity, backlog of orders and new export orders all weakened on the month with first two staying healthy in expansion and latter barely managing to stay above 50. The employment index was the biggest concern as it plunged back into contraction with a 45.2 print, well below six-month average, thus going the other way from strong March NFP number.
February PCE inflation report showed both headline and core PCE coming in as expected at 2.8% y/y and 3% y/y respectively. The former was unchanged from January while the latter rose from 2.8% y/y the previous month. The data are before the escalation in Middle East so they are of very little consequences. Personal income, however, dropped 0.1% m/m indicating struggling consumer especially when inflation is expected to pick up in the coming months. Final Q4 GDP reading was revised down and now shows a 0.5% annualized growth, down from 0.7% in the second reading.
CPI for the month of March came in at 3.3% y/y as was widely expected, a surge from 2.4% y/y in February due to a jump in energy prices as they rose 10.9% m/m with gasoline prices jumping 21.2% m/m and fuel oil surging 30.7% m/m. Monthly print saw expected 0.9% price increases. Core PCE rose to 2.6% y/y from 2.5% y/y the previous month, a smaller than expected 2.7% y/y print as core CPI rose just 0.2% m/m vs 0.9% m/m as expected. Supercore printed acceptable 0.139% m/m and 2.27% y/y. Shelter, the biggest component of CPI, still prints 3% y/y. Used cars and trucks showed the biggest decline in prices at -3.2 y/y. Lack of spillover from headline to core is encouraging and some analysts are suggesting that this inflationary shock could be contained while using a very loaded word in recent times “transitory.”
The yield on a 10y Treasury started the week at 4.32%, rose to 4.36% and finished the week at around 4.31%. The yield on 2y Treasury started the week at 3.83%, rose to 3.88% and finished the week at around 3.81%. Spread between 2y and 10y Treasuries started the week at 50bp and finished the week at 50bp. FedWatchTool sees the probability of a 25bp rate hike at May meeting at around 2% while probability of no change is at around 98%. WTI had another volatile week reaching as high as $117 and as low as $90 only to finish the week at around $95 per barrel.
EUR
Final services PMI reading for the month of March was revised up to 50.2 from 50.1 as preliminary reported. This makes it a new ten-month low. French reading was revised up with Spanish reading heavily beating expectations. On the other hand, German print was revised down while Italy missed expectations and dropped into contraction territory. New orders plunged hard as demand is hit hard by the uncertainties due to US – Iran war. Input prices, due to the same cause, jumped to a new 34-month high. Composite was also revised up to 50.7 from 50.5 as preliminary reported but it still makes a new nine-month
GBP
Final March services PMI was revised down to 50.5 from 51.2 as preliminary reported making it the lowest reading since May of last year. The report highlights a “marked slowdown in output growth” caused by the US – Iran war. Conflict in Middle East has also led to weakest expansion in business activity since April of 2025. Input costs surged due to energy supply shocks and at the same time business confidence plunged.
AUD
March CPI data from China showed CPI increasing by 1% y/y, slower than 1.3% y/y in February and 1.2% y/y as was expected. On the other hand, PPI showed its first yearly growth since September of 2022 as prices at the factory gates rose by 0.5% y/y. Input costs continue to rise due to supply disruptions caused by US – Iran war, however domestic demand remains lackluster.
This week we will have employment report from Australia as well as GDP and economic activity data from China.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
GDP (China)
Industrial Production (China)
Retail Sales (China)
NZD
RBNZ has left Official Cash Rate (OCR) at 2.25% as was widely expected. They see inflation rising sharply to 4.2% in Q2 due to energy disruptions caused by US – Iran war. The increase in energy prices will negatively impact growth so growth outlook has been revised down. Risks to inflation are tilted to the upside while risks to growth are tilted to the downside creating somewhat of a stagflationary environment. The committee is carefully monitoring inflation developments and is prepared to act if necessary in order to “ensure inflation returns to target over the medium term.” The statement is leaning more hawkish with comment like the outlook had ‘materially altered’.
RBNZ Governor Brenan stated that prior rate cuts still provide stimulus to economic activity. She reiterated that data at the beginning of the year were very encouraging. The economy is heavily influenced by the Middle East conflict and if situation there improves, fast ceasefire, it could lead to a strong growth this year. Brenan also warned about higher expected inflation, expected to peak in the second quarter, due to the US – Iran war.
CAD
March employment report saw economy add jobs for the first time this year with 14.1k vs 15k as expected. The unemployment rate remained stable at 6.7% while markets were seeing a tick up to 6.8%. Participation rate also stayed unchanged at 64.9%. Structure of the jobs is a bit concerning as all of the jobs added were part-time (15.2k) while economy shed full-time jobs (-1.1k). Wages showed a 4.7% y/y growth, a jump from 4.2% y/y in February, and highest growth since October of 2024. Other services category added the most jobs followed by professional, scientific and technical services while job losses were concentrated in finance, insurance, real estate, rental and leasing category. We got first signs of stabilization in labor market. One month is not enough for BoC to take any action but if jobs growth continue it could lead to CAD strength.
JPY
February household spending showed third consecutive month of declines as it printed -1.7% y/y vs -0.7% y/y as expected and -1% y/y in January. Deadly combination of high inflation and high uncertainty caused by US – Iran war puts downward pressure onto spending. We should get a bit of improvement in the reading after spring wage negotiations. Japan has already released 50 days of oil reserves in March and now they plan to release 20 more days starting from May. The government aims to diversify from their dependence on Straight of Hormuz and looks for more broader base in United States, Central Asia, Africa and Latin America.
PPI has jumped to 2.6% y/y in March from 2% y/y in February beating expectations of a 2.4% y/y print. The main culprit are, of course, energy prices and since Japan imports almost all of its energy needs input costs surged 7.9% y/y. BoJ Deputy Governor Himino warned that economy is in danger of slipping into stagflation, high inflation, low growth. Markets have increased chances of BoJ hike in April on the back of these comments.
CHF
SNB total sight deposits for the week ending April 3 came in at CHF464.3bn vs CHF460.9bn the previous week. This makes it a fourth consecutive week of rising deposits. Seasonally adjusted unemployment rate stayed at 3% in March.
