Preliminary April PMI data from the Eurozone, UK and Japan will be the most important economic news events in the week ahead of us. Trump posts and headlines regarding the tariffs and trade war will again drive the market. Also note that European markets will be closed on Monday due to Easter Monday.
USD
Fed Governor Waller stated that in a case of recession he would vote for deeper and faster rate cuts. On the impact of tariffs he divided situation into two scenarios. Scenario 1 sees tariffs of 25% on average or more which would cause inflation to peak at around 4-5% after which it would drop meaningfully with the unemployment rate rising to as high as 5%. He said that in this situation he would opt for faster and bigger cuts than previously thought. He labelled these cuts as “bad news” cuts. Scenario 2 sees tariffs of 10% on average which would cause inflation to peak at around 3%. Since these tariffs would not increase the chance of recession Fed would most likely cut in the second half of the year and those cuts were labelled as “good news” cuts.
Retail sales report for the month of March saw headline number come in at 1.4% m/m vs 1.3% m/m as expected and up from 0.2% m/m in February. Motor vehicle parts and dealers saw the biggest increase followed by building materials and garden equipment while gasoline stations showed the biggest decline. Control group, excluding volatile components and thus a better gauge of consumer health, rose by 0.4% m/m vs 0.6% m/m as expected, however, February reading was revised up to 1.3% m/m from 1% m/m as previously reported. This is a good report, showing a healthy consumer, with caveat that jump in motor vehicle parts sales may be due to frontrunning of tariffs.
The yield on a 10y Treasury started the week at 4.45%, rose to 4.50% and finished the week at around 4.34%. The yield on 2y Treasury started the week at 3.92% and reached the high of 3.98%. Spread between 2y and 10y Treasuries started the week at 52bp and finished the week at 53bp as curve bear steepened further. FedWatchTool sees the probability of a 25bp rate cut at May meeting at around 9%, while probability of a no cuts is around 91%. Gold has settled above $3300. WTI crude rose on new sections on Iran oil and finished the week at around $64.
EUR
German ZEW survey for the month of April saw current conditions improve to -81.2 from -87.6 in March but expectations category plunged to -14 from 51.6 the previous month on the back of concerns regarding tariff impact. Expectations for the Eurozone fared similarly as they dropped to -18.5 from 39.8 the previous month. Final inflation numbers for March were both unchanged at 2.2% y/y for headline number and 2.4% y/y for core.
ECB has delivered a 25bp rate cut thus bringing the deposit rate to 2.25% as expected. The statement emphasized that disinflation process is well on track and that Governing Council remains committed to bringing it down to the 2% target. The part regarding policy rate “becoming meaningfully less restrictive” has been omitted. Additionally, Governing Council is not pre-committing to any rate path as they remain in data-dependent and meeting-by-meeting decision mode.
President Lagarde stated during the press conference that downside risks have increased and it will bring down Eurozone growth through lower exports. She clarified that the decision to cut by 25bp was unanimous and added that strong EUR will help push inflation down towards their target. There was a debate about a 50bp insurance cut but it did not gain traction. Additionally, she stated that the economy is facing a negative demand shock caused by tariffs and did not comment on neutral rates.
This week we will have preliminary April PMI data.
Important news for EUR:
Wednesday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
GBP
Payrolls change for the month of March saw a decline of 78k jobs which followed a drop of 8k jobs seen in February. ILO unemployment rate for February stayed at 4.4% while wages saw slower growth with weekly earnings rising 5.6% 3m/y vs 5.7% 3m/y as expected and ex bonus category printing 5.9% 3m/y vs 6% 3m/y as expected. These data are still tainted by the surveying issues stated by the ONS but they do hint to some weakening in the labor market.
March inflation data saw headline number tick down to 2.6% y/y from 2.8% y/y in February. Core reading also ticked down to 3.4% y/y as expected from 3.5% y/y the previous month. Additionally, services inflation declined to 4.7% y/y from 5% y/y seen in February. This print will be well received by the BoE which are expected to provide a rate cut at their meeting in May.
This week we will have preliminary April PMI data.
Important news for GBP:
Wednesday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
Minutes from the April RBA meeting showed that it is not yet possible to determine timing of next move in rates and that more clarity will be at the May meeting. The Board saw both upside and downside risks for the economy and inflation and emphasized that it will be very important to safeguard progress made on inflation and not to ease prematurely. They have also expressed their concerns regarding tightness of the labor market and added that wage growth could continue to slow.
March employment report saw a bounce back from February as employment change showed 32.3k jobs added after a drop of 57.4k the previous month. The unemployment rate ticked up to 4.1% from downwardly revised 4% in February while expectations were for it to print 4.2%. Participation rate also ticked up, 66.8% from 66.7% the previous month. Full-time jobs increased by 15k while part-time jobs expanded by 17.2k.
March trade balance from China saw effects of frontloading due to incoming tariffs. Trade surplus was $102.64bn with exports surging 12.4% y/y vs 4.6% y/y as expected. Seminconductors and LCD displays saw biggest increases in exports. Exports to the US have increased despite the initial 20% tariffs. On the other hand, imports declined by 4.3% y/y indicating weak domestic demand. Car imports plunged almost 50% followed by double digit declines in steel and lumber. In the coming months we will have a much more different picture of trade data as April tariffs start distorting global trade.
Q1 GDP saw a growth of 1.2% q/q vs 1.4% q/q as expected and down from 1.6% q/q in Q4 of 2024. On a yearly basis economy grew by 5.4% beating expectations of 5.1%. Miss on quarterly growth print caused many analysts to downgrade their assessment of China’s GDP for 2024 towards lower half of 4%. This means that more support, fiscal and monetary, is needed for China to reach its 5% target. Economic data for the month of March saw industrial production surge 7.7% y/y from 5.9% y/y in February as frontloading of tariffs put factories into overdrive. Retail sales jumped to 5.9% y/y from 4% y/y seen the previous month.
NZD
RBNZ Chief Economist Conway warned that the balance of risks shifted to the downside as tariffs will impact global economic activity and thus lead to lower than expected growth in New Zealand. Q1 inflation data came in higher than expected with 0.9% q/q print vs 0.5% q/q in Q4 and 2.5% y/y vs 2.2% y/y in the previous quarter. RBNZ’s preferred inflation measure, sectoral factor model, printed 2.9% y/y, down from 3.1% y/y in the previous quarter and back into the targeted range of 1-3%.
CAD
March inflation report saw headline number drop further to 2.3% y/y from 2.6% y/y in February. Core measures were also down with common and trim at 2.3% y/y and 2.8% y/y vs 2.5% y/y and 2.9% y/y respectively. Median was unchanged at 2.9% y/y.
BoC left rates unchanged at 2.75% as was widely expected by the markets. Tariffs are again taking central stage in the statement showing high uncertainty regarding economic outlook regardless of the tariff scenario. Two scenarios are mentioned. First, “uncertainty is high but tariffs are limited in scope. Canadian growth weakens temporarily and inflation remains around the 2% target. In the second scenario, a protracted trade war causes Canada’s economy to fall into recession this year and inflation rises temporarily above 3% next year.” They also clarify that there are many other scenarios possible. Tariffs are slowing down economy as they negatively impact both consumer and business confidence. There was no clear guidance on policy but the statement ends with “Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians.”
The bank has provided projections based on two scenarios stated in the previous paragraph. In the case of first scenario, limited tariffs, 2025 GDP is seen at 1.6%, 2026 at 1.4% and 2027 at 1.7%. CPI is seen at 1.8% in 2025, 2% in 2026 and 2.1% in 2027. In the case of second scenario, a protracted trade war, 2025 GDP is seen at 0.8% with 2026 seen at -0.2% before bouncing back to 1.6% in 2027. CPI is seen at 2% in 2025, then jumping to 2.7% in 2026 and reverting back to 2% in 2027. Governor Macklem spoke at the press conference and highlighted that BoC is navigating carefully adding that they did consider cutting rates.
JPY
BoJ Governor Ueda stated that tariffs may warrant a policy response. The bank will spend more time assessing the impact of tariffs on the economy but risks surrounding U.S. tariff policy have moved closer towards ‘bad’ scenario BoJ envisioned. March inflation data for the entire country of Japan saw headline number tick down to 3.6% y/y from 3.7% y/y in February, but core inflation numbers rose. Ex fresh food component rose to 3.2% y/y as expected from 3% y/y the previous month while ex fresh food and energy component, core-core, rose to 2.9% y/y as expected from 2.6% y/y in February. Rising inflation should pressure BoJ into action but tariff uncertainty keeps them waiting. President Trump stated that talks with Japan regarding trade deal are progressing nicely and that sides are getting close to the deal. We are not hearing the same from the Japanese side, but given the history between two countries we can easily see deal being negotiated soon. After that BoJ will have much clearer picture on how to proceed with monetary policy.
CHF
SNB total sight deposits for the week ending April 11 came in at CHF446.9bn vs CHF443.7bn the previous week. The print is highest for the year, but barely and it could be said that it is sitting at the top of the range more than it is a breakout.
