Week of March 17

Geopolitical tensions encircling tariffs remained the primary focus in markets last week, nearly overshadowing a softer US CPI print and the BOC rate cut.

The highlight of the upcoming week is central bank rate decisions from the Federal Reserve, the BOJ, and the BOE, along with US retail sales figures and inflation data from Canada and Japan.

Week in Review

The focus last week was primarily on concerns that the US economy was underperforming, with investors cautious due to tariff uncertainties, which led to a general shift towards safer assets and a decline in indices on a global scale.

The most anticipated economic data release of the week, the US CPI, showed a slightly slower growth rate than expected. However, the slowdown was still in line with expectations and did not alter the Fed's next rate cut expectations much. Subsequent PPI figures also presented a mixed picture, with the headline below expectations and an upward revision for the previous month.

The BOC cut rates by a quarter of a point as expected, but Governor Tiff Macklem refrained from providing forward guidance, citing uncertainty surrounding the trade war.

ECB President Christine Lagarde reiterated previous rhetoric at a Watchers event, but markets reacted to her comments about entrenched inflation amidst concerns that tariffs would raise prices.

The UK's monthly GDP unexpectedly turned negative at -0.1%, contrary to the expected 0.1% and down from the previous 0.4%.

In geopolitical developments, former BOC and BOE governor Mark Carney became the new Prime Minister of Canada following Justin Trudeau's resignation. Carney vowed to maintain tariffs until the US showed "respect".

The expected US tariffs on steel and aluminium came into effect, prompting retaliatory tariffs on some US products entering the EU. Former President Donald Trump then threatened 200% tariffs on alcoholic beverages from Europe.

Portugal's Prime Minister lost a no-confidence vote after less than a year in office, leading to snap elections.

On the Ukraine war front, there was initial optimism after Ukraine accepted a US-proposed 30-day ceasefire, but Russia expressed unwillingness to sign it, citing advances of Russian forces in Kursk.

Biggest Market Movers

• The S&P 500 officially entered correction territory as traders weighed tariff risks and persistent concerns about a US economic slowdown.
• Gold hit a new all-time high above $3k/oz amid generally lower US yields, resulting from the flight to safety that has gripped markets for several weeks.
• Brent crude prices managed to recover later in the week on improving risk sentiment, rising above $70/bbl.

Week Ahead

The upcoming week is packed with rate decisions, with the focus extending to ongoing tariff matters.

Central Banks in Focus

The Fed is expected to keep rates unchanged when it meets on Wednesday, with a strong consensus pointing to a July rate cut. However, given the recent inflation data and concerns about the US ongoing economic outlook, investors will be keen to see if any indications of earlier easing arise. Markets will also look forward to an update on the economic projections by the Fed, which will be released concurrently with the decision. A downgrade is likely to further support a dovish narrative, and in turn, boost gold higher. At its new record highs, the next resistances are at the round $3050 and $3010 levels.

The BOJ meeting on Wednesday is widely expected to keep rates unchanged, although strong wage growth initially reported thus far might lead markets to seek signs of when the next rate hike will occur. However, the potential lack of tariff effects could outweigh those considerations. USDJPY remains below the 150 handle, leaving the door open to a drop to 146.

The BOE will have its turn a day after the BOJ, which is also expected to keep rates unchanged after cutting at the last meeting, as high inflation and slower economic growth are expected to be at odds. The bank could wait until after the updated Spring budget to adjust policy. As usual, the focus will be on the vote count, with investors looking to Catherine Mann after her wide swing at the last meeting. Shy of the 1.30 resistance, the BOE will likely provide more clarity on whether traders could eye 1.31 or secure additional profits towards 1.28.

Inflation and Signs of Economic Growth

The recent flight to safety over the last couple of weeks could mean that markets will react more to economic growth and weakness indicators than inflation, at least until the situation stabilises. With that in mind, US retail sales on Monday will likely be in focus, as they are expected to rebound by +0.5% compared to the surprise -0.9% of the prior month.

Canada is expected to post a bump up in its headline inflation rate to 2.5% with the end of the tax break, while the core rate is expected to advance minimally to 2.2% from 2.15% prior. The loonie might see a break outside the 1.4340 - 1.4470 range.

The UK is expected to see its unemployment remain unchanged at 4.4%. Japanese inflation is expected to have continued its upward trend to reach 4.2% from 4% prior, widening the divergence from the core rate, which is expected to ease to 2.3% from 2.5% prior.

Other Events, Earnings

The week commences with the release of Chinese industrial production data on Monday. Tuesday will see the publication of US housing starts figures. On Wednesday, Japan's trade balance statistics will be unveiled. Thursday is scheduled for the announcement of Australian employment figures. Finally, Canadian retail sales data is anticipated on Friday.

A relatively quiet week awaits on the corporate front, with major names such as Prudential, General Mills, Accenture, Nike, Micron, FedEx, and Carnival reporting earnings.