Week of March 24

A busy week for central banks ended with the Fed, BOJ and BOE keeping interest rates unchanged, as widely anticipated.

The week ahead remains eventful, featuring flash PMI data, inflation figures from the US, UK, and the Euro Area, and US durable goods orders.

Week in Review

Central banks managed to shift the focus away from trade tariffs last week, which had been dominating headlines. The policy remained largely unchanged, and the Fed adjusted its economic outlook for the remainder of the year, which provided markets with a slightly more dovish impression. Despite ongoing trade policy uncertainty, the central bank reduced its growth forecast and slightly increased its inflation outlook.

Nonetheless, Fed Chair Jerome Powell mirrored the stance of US Treasury Secretary Scott Bessent, saying that the inflationary impact of tariffs would be transitory. Meanwhile, US retail sales did not meet expectations, but this was attributed to a persistent lack of automobile supply, as the figure excluding that item exceeded projections.

Uncertainty was also a recurring theme at the BOE, which held interest rates unchanged with an 8-1 vote, with Dhingra being the sole dissenter in favour of a rate cut. The post-decision statement highlighted increased geopolitical uncertainty and signalled that interest rate cuts would come gradually. Meanwhile, the UK's unemployment rate remained unchanged at 4.4%, with average hourly earnings also holding steady at 5.9%.

The BOJ met expectations by keeping rates unchanged in a unanimous decision, indicating that interest rates would converge towards the target at the latter end of the 3-year forecast cycle. Governor Kazuo Ueda acknowledged that global uncertainty had increased and suggested that rate hikes might need to be accelerated if upside risks materialised. He also expressed a desire to review the outlook in light of data that would become available in early April.

Chinese industrial production increased at a faster rate than expected, although it decelerated from the previous month.

Canadian inflation unexpectedly accelerated to 2.7%, above the 2.2% expected, which was attributed to the end of the winter tax holiday.

In geopolitical developments, an anticipated phone call between US President Donald Trump and Russian President Vladimir Putin did not yield an agreement for a ceasefire in Ukraine.

Reports circulated that Canadian Prime Minister Mark Carney would call snap elections for April 28th.

The German Parliament approved a constitutional modification to the debt brake, allowing for a €500 billion defence and infrastructure spending package.

Additionally, there were reports that the White House was considering handing over its traditional command of NATO operations in Europe to the EU.

Biggest Market Movers

• Aussie tested 0.63 after unemployment unexpectedly turned negative, marking the largest drop in payrolls in a year and a half.
• The USDCHF pair was among the better performers at the start of the week but lost some gains following the SNB rate decision.
• Gold prices advanced to new all-time record highs through the early part of the week but stalled after the Fed's rate decision.

Week Ahead

Inflation figures are likely to be the highlight of the week as markets digest the recent spate of rate decisions that left global rates inclined lower.

Inflation Figures in the Spotlight

The Fed's preferred consumer price measure, Core PCE, is due on Friday and is expected to increase to 2.8% from 2.6% prior. The headline PCE rate on a monthly basis is forecast to increase to 0.5% from 0.3% prior. A higher print could weigh on US equities, sending the Nasdaq towards 19k.

In Europe, French flash CPI figures for March, often indicative of the broader Euro Zone, are expected to pick up to 1.0% from 0.8% previously. Earlier in the week, UK inflation is expected to remain unchanged at 3% on the headline, but the core is anticipated to slip to 3.5% from 3.7% prior.

Global Economic Indicators: Some Improvement

At the start of the week, flash PMIs from key economies are anticipated, with Euro Area and UK composite numbers expected to advance modestly into expansion territory, while the American version loses ground but remains expansive. The EURUSD pair eyes the 1.08 handle, and cable failed to get past 1.30, opening the door to 1.28 should the dollar continue firming up.

Traders monitoring the US economic growth situation will closely scrutinise durable goods orders mid-week to assess if businesses continue making substantial capital expenditures. A day later, it is expected to confirm Q4 GDP growth at 2.3% in the final read.

Meanwhile, UK retail sales will be in focus on Friday, with the core growth rate forecast to slow to 1% from 1.2% previously. Footsie bounced at the 50-day moving average of 8630 for now, but poor numbers from the UK could change that.

Other Events, Earnings

Monday sees the release of Switzerland's current account data. Tuesday features the German Ifo business climate survey and US Conference Board consumer confidence data. Wednesday has Australian CPI figures. Thursday includes US pending home sales. German GfK consumer confidence data is due on Friday.

Earnings expected in the coming week include GameStop, McCormick, Paychex, Lululemon, Walgreens Boots Alliance, and Braze.