Week of March 3

The calendar was relatively light last week, leaving more room for tariffs to influence the markets. Stronger durable goods and the awaited Chinese PMI figures did not reassure investors.

The week ahead has a busier schedule. It begins with Euro Area inflation and global PMIs, followed by the ECB's rate decision and concludes with US Non-Farm Payrolls (NFP) data.

Week in Review

The markets remained in a holding pattern throughout the week until trade announcements took centre stage and the tail end of the earnings season failed to provide an upward catalyst. US durable goods also surged 3.1% in January from the expected 1.4%, contradicting the narrative of an underperforming American economy.

In Europe, German ECB monetary policy committee member Isabel Schnabel suggested that the time had come to start debating whether to pause interest rate cuts ahead of the ECB's rate decision next week.

BOE Deputy Governor Dave Ramsden indicated that the bank perceives inflation risks as balanced rather than downside, implying that further rate cuts could be on hold until inflation declines. On the technical side, Cable failed to reclaim the 200-day moving average of 1.2635, potentially paving the way to 1.25.

In geopolitics, US President Donald Trump confirmed that anticipated tariffs on Canada and Mexico would go into effect next week, with additional tariffs on China and new tariffs on the EU.

Ceasefire negotiations about the war in Ukraine progressed. Ukrainian President Volodymyr Zelenskiy met with Trump in Washington, and officials commented that a deal to at least pause the fighting might be reached next week.

As widely anticipated, Germany's centre-right CDU obtained the largest number of seats in the Bundestag, but fractional results mean an extended period of negotiations to form a government. Presumptive Chancellor Friedrich Merz hopes to take office before Easter.

Biggest Market Movers

• The US dollar index gained through the week, seeing a strong upswing after Trump confirmed that tariffs would go into effect.
• Antipodean currencies (AUD and NZD) experienced the largest losses after Australian inflation unexpectedly slowed, combined with concerns over China's economic growth.
• Bitcoin fell around 20%, with analysts pointing to concerns over trade war tensions.
• WTI fell below $70 per barrel as doubts about the economy raised concerns about demand, but it regained its losses by the end of the week.

Top Events in the Week Ahead

Europe will be the focus of the coming week, starting with the February release of flash CPI figures. However, based on data from Germany and France released on Friday, the results will likely already be telegraphed to the market. Nevertheless, markets expect headline and core inflation in Europe to remain at 2.5% and 2.7%, respectively. With EURUSD sitting at the 50-day moving average near 1.04, 1.03 and 1.05 come into focus.

Meanwhile, final PMI readings are expected to confirm that business optimism in Europe remains depressed, though potentially showing some signs of recovery. That would keep the ECB on track to cut rates once again when it meets on Thursday. There has been some doubt lately by more hawkish members, but there is a solid consensus that the reference rate will be trimmed by 25 bps. What happens in the aftermath and how much signalling the bank achieves for either a pause or more easing will remain a subject of debate. The markets and economists agree that 75 bps of cuts are still coming up, weighted towards the early part of the year.

US Jobs Staying the Course

After persistent inflationary pressures weighing on the Fed's stance for the future of rates, investors expect that the upcoming US jobs data will continue to show that the sector remains tight but not overly expansionary. February NFP are expected to come in at 180K, up from the 143K prior, with the unemployment rate at 4%. A stronger release would weigh on gold, opening the door to $2820 per ounce. On the flip side, the 20-day moving average of $2900 remains an important level to watch.

Economic Growth and Trade in the Tariff Era

Chinese PMIs are expected to confirm a return to expansion, supported by stimulus measures that could offset worries about the impact of tariffs on global trade. With that in mind, Canada's trade balance, coming out on Thursday, could earn renewed focus. After tariffs went into effect at the start of February, last month's trade balance from China will also get attention when it comes out on Friday to see whether there has been a drop in demand.

Other Events, Earnings

Monday sees BOE consumer credit data. The RBA will release the minutes of its latest meeting on Tuesday. Wednesday has Australia GDP figures. Thursday includes the Australian trade balance and Canada's Ivey PMI. For Friday, the UK Halifax house price index is on tap.

Earnings expected in the upcoming week include Li Auto, CrowdStrike, AutoZone, Marvell, Broadcom, Reckitt Benckiser and Inchcape.