Weekly Market Outlook (17-21 March)

UPCOMING EVENTS:

• Monday: China Industrial Production and Retail Sales, US Retail Sales, US NAHB Housing Market Index.
• Tuesday: German ZEW, Canada CPI, US Housing Starts and Building Permits, US Import Prices, US Industrial Production and Capacity Utilization.
• Wednesday: BoJ Policy Announcement, FOMC Policy Announcement.
• Thursday: Australia Employment report, PBoC LPR, UK Employment report, BoE Policy Announcement, US Jobless Claims.
• Friday: Japan CPI, Canada Retail Sales.

Monday

The US Retail Sales M/M is expected at 0.6% vs. -0.9% prior, while the ex-Autos figure is seen at 0.4% vs. -0.4% prior. The focus will be on the Control Group figure which is expected at 0.2% vs. -0.8% prior.

Consumer spending has been stable in the past months which is something you would expect given the positive real wage growth and resilient labour market. More recently though, we’ve been seeing some easing in consumer sentiment due to the ongoing trade wars and tariffs uncertainty which weighed on spending.

Tuesday

The Canadian CPI Y/Y is expected at 2.2% vs. 1.9% prior, while the M/M reading is seen at 0.6% vs. 0.1% prior. The Trimmed-Mean CPI Y/Y is expected at 2.8% vs. 2.7% prior, while the Median CPI Y/Y is seen at 2.8% vs. 2.7% prior.

Inflation has been inside the target band for almost a year although we’ve seen a slight uptick recently as the aggressive easing from the BoC in the past year started to positively affect economic activity.

The economic data out of Canada has been picking up before the Trump’s trade war with Canada started but more recently started to weaken as the uncertainty weighed on consumer and business sentiment.

As a reminder, the BoC cut interest rates by 25 basis points to 2.75% as expected last week amid concerns over weaker growth ahead due to the trade uncertainty and US tariffs. The central bank emphasized a cautious approach to future decisions, balancing the upward pressure on inflation against the downward pressure on weaker demand.

Governor Tiff Macklem acknowledged the economic uncertainty, and he warned that a prolonged trade war could slow GDP growth, weaken the job market, and push inflation higher, creating a difficult policy environment.

The market didn’t increase much the expectations for more easing by year-end but brought forward the rate cuts expecting the central bank to offset the negative sentiment amid the trade war. There’s a 52% chance of another 25 bps cut at the upcoming meeting with a total of 45 bps of easing by year-end.

Wednesday

The BoJ is expected to keep interest rates steady at 0.50%. The data recently started to come out on the softer side and Governor Ueda didn’t sound like someone who’s in a hurry to raise rates amid some uncertainty.

The Japanese firms agreed to lower than demanded wage hikes. This didn’t change the market pricing of 31 bps of tightening by year-end as traders await more data on the inflation front to increase the expectations for another rate hike.

As a reminder, the Tokyo CPI missed expectations recently with a notable dip towards the 2% handle.

The Fed is expected to keep interest rates steady at 4.50-4.75%. The recent Fedspeak has been leaning towards acknowledging some short-term uncertainty amid Trump’s policies but still seeing solid growth.

Fed Chair Powell in particular sounded very adamant on the current wait-and-see stance as he said that the cost of being cautious are very very low and that the central bank does not need to anything right now.

The US CPI and PPI data last week despite coming in softer than expected increased the projections for the Core PCE which is the Fed’s preferred inflation measure. This will add to their reasons to remain on the sidelines for now.

The focus will be on the SEP and especially on the Dot Plot as the market will be eager to see if the central bank increases the projections from two to three rate cuts in 2025. The market is pricing 70 bps of easing by year-end.

Thursday

The Australian Employment report is expected to show 30K jobs added in February vs. 44K in January and the Unemployment Rate to remain unchanged at 4.1%. As a reminder, the RBA cut interest rates by 25 bps as expected recently bringing the Cash Rate to 4.10% but it was accompanied by a more hawkish than expected guidance.

After the rate decision, we got a strong Australian Employment data and the monthly Trimmed-Mean CPI ticked higher to 2.8% remaining near the upper bound of the 2-3% target range. This report is unlikely to change anything for the RBA unless we see a material weakening the data.

The UK Unemployment Rate is expected to remain unchanged at 4.4%. The Average Earnings are expected at 5.9% vs. 6.0% prior, while the Ex-Bonus Earnings are seen at 5.9% vs. 5.9% prior. Analysts continue to caution against the employment data reliability and therefore it’s unlikely to influence interest rate expectations much.

As a reminder, the last report beat expectations across the board which continues to keep the BoE in an uncomfortable position given the high wage growth and sticky inflation. The market pricing didn’t change much though as we still have 54 bps of easing expected by year-end.

The BoE is expected to keep the Bank Rate unchanged at 4.50% with a 7-2 vote split. The central bank remains in an uncomfortable position amid high wage growth and sticky inflation. The last UK CPI beat expectations across the board with the services inflation measure, which is what the BoE is more concerned about, jumping back to the 5.0% handle from 4.4% prior. Therefore, it’s unlikely that they will signal much other than keeping rates steady until they get more confidence on the inflation front.

The US Jobless Claims continue to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market.

Initial Claims remain inside the 200K-260K range created since 2022, while Continuing Claims continue to hover around cycle highs.

This week Initial Claims are expected at 225K vs. 220K prior, while there’s no consensus at the time of writing for Continuing Claims although the prior release saw a decrease to 1870K vs. 1897K prior.

Friday

The Japanese Core CPI Y/Y is expected at 2.9% vs. 3.2% prior. The Tokyo CPI is seen as a leading indicator for National CPI, so it’s generally more important for the market than the National figure. The last report showed the Tokyo Core CPI missing expectations and dipping back near the 2.0% handle.