Markets kicked off the week with investors indigestion due to U.S. President Trump’s weekend remarks alluding to a “period of transition” in the economy, which did little to ease recessionary concerns. Equities accelerated lower, with tech leading the selloff, while demand for U.S. Treasuries surged.
The S&P 500 ended down -2.7%, the Nasdaq plunged -4% marking one of the worst sessions for equities in months. Tesla (TSLA) plummeted -15.4%, its sharpest drop since September 2020, not a great day for Elon. 10yr UST yields dipped to 4.20% before consolidating in the afternoon. The front end outperformed again with 2yr yields back through 3.90%, 5s30s steepened to 56bps, revisiting last Friday’s highs, the steepest since early October.
On the data front, NY Fed’s one-year inflation expectations ticked up to 3.1%, though the increase was more modest compared to the University of Michigan and Conference Board readings. Notably, consumer sentiment on future household finances deteriorated, with 27.4% of respondents expecting a worse financial situation in a year, the highest level since November 2023. This follows weak employment data from ADP, where the rise of those taking multiple jobs to make ends meet was evident. Challenger stats saw job cuts rise to the 4th highest since 1990.
Amidst heightened market volatility, Fed rate cut expectations have tilted dovish. Markets are now pricing in around 82bps of rate cuts for 2025, with the probability of a May cut now above 50%. The FOMC enters its blackout period ahead of the March 19 meeting, and investors will be watching key data releases closely for confirmation of an easing trajectory.
Over the pond in Germany, bond issuance estimates have risen to €190–230bn per annum, a sharp contrast to the €10bn annual net supply from 2008-2025. This increase hinges on the passage of Germany’s largest fiscal expansion since reunification, though political uncertainty remains high ahead of the March 24 deadline.
In China CPI fell to -0.7% YoY in February, marking a sharp downturn from +0.5% in January due to Lunar New Year effects. March’s data is worth watching as it will reveal the impact of the recent regenerative policies. We see more and more commentators viewing China favourably, having previously views the country as uninvertible. Funny what a stock rally will do for perception.
In Australia productivity growth remains dismal, with output per hour barely above decade-ago levels. However, some of this weakness may be distorted by pandemic related factors, with expectations that the pre-pandemic commodity-price relationship will reassert itself in coming quarters. This morning’s Westpac consumer confidence showed a jump of 4% m/m to 95.9, the highest in 3 years, boosted by the 25bps rate cut.
UK GDP is expected to rise 0.2% MoM in January, 0.3% QoQ for Q1, and 1% in 2025. Risks appear tilted to the upside.
This week is heavy for data,
Today: US JOLTs report (Jan): – labor market tightness under scrutiny.
· Wed (3/12): US CPI (Feb) – market expects headline/core at 2.9%/3.2%, slightly lower than January’s 3.0%/3.3%.
· Wed: BoC rate decision – a 25bp rate cut is expected; forward guidance key, particularly in light of tariffs.
Thurs (3/13): US PPI (Feb)
Frii (3/14): Michigan sentiment (March)
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