Weekly Recap

US stocks fell sharply again last week as economic uncertainty and trade war fears remained front and centre for investors. Despite a rally on Friday as the US government averted a shutdown, US stocks booked further losses, with the Nasdaq declining 2.4% last week. The S&P 500 joined the Nasdaq in correction territory (a 10% decline from its recent high), and the Dow saw its worst weekly performance since 2023.

Data showing that US inflation cooled by more than expected to 2.8% YoY brought short-term relief to stocks, but investors are conscious that trade tariffs will likely add inflationary pressures down the road. Michigan sentiment plunged to a 2.5-year low, and 5-year inflation expectations soared to the highest since 1993.

The USD steadied at a five-month low last week, while the EUR/USD and GBP/USD hovered at five-month highs.

Gold surged above $3000 to a fresh record high, boosted by safe haven demand and a weak USD.

China retail sales / industrial production (Monday)

Data released overnight showed that Chinese retail sales rose at the start of the year to 4%, up from 3.7% in December and in line with economists’ expectations. Meanwhile, industrial production rose 5.9% down from 6.2% growth in December but ahead of the 5.3% expansion that was expected. Finally, fixed asset investments rose 4.1% ahead of the 3.6% growth expected. The data comes after Chinese policymakers unveiled wide-ranging plans to stimulate domestic consumption over the weekend, and Beijing pledged to boost residents’ income and household spending.

The Hang Seng hovers around multi-year highs following the data and as investors rotate out of the US into China.

US Retail sales (Monday)

US retail sales will be watched closely after they plunged l-0.9% Month over Month in January, falling sharply as consumers pulled back following a busy holiday season. The markets will be keen to see that this is a one-off rather than the start of a new depressed trend. Economists expect sales to rebound +0.7% Month over Month in February. Bank of America’s consumer checkpoint data, which is considered a decent predictor for retail sales performance of late, showed a seasoning adjusted rise of 0.3% MoM, pointing to continued momentum in spending after a weak start to the year. Still, rising recession worries and deteriorating consumer confidence due to Trump’s trade policies could keep retail sales weak. Should household consumption, a key driver of US economic growth, show signs of a weakening trend, slowdown worries could rise, pulling stocks lower.

Despite rising over 2% on Friday, the S&P 500 is trading in correction territory as slowdown worries hit sentiment. Weak data could further drag on stocks.

Canada CPI (Tuesday)

Canadian inflation data comes after the central bank cut its key lending rates by 25 basis points last week to 2.75%, its lowest level since 2022. This is in the middle of its mutual policy between 2.25% and 3.25%. The data is likely too early to capture any tariff-related impact on Canadian prices. The steel and aluminium tariffs came into effect on March 12, but the fentanyl related tariffs have been delayed until April 2. While the ongoing trade tensions have crashed business confidence, the impacts won’t appear in the inflation data.

The BoC will monitor the data release to see how close inflation remains to target. The central bank’s primary focus will be on the impact of tariffs. Given the high levels of uncertainty, policymakers need to intervene further in June to provide some economic cushioning.

USD/CAD trades within a familiar range between 1.43 and 1.4460.

BoJ rate decision (Wednesday)

The Bank of Japan is expected to keep its interest rate at 0.5% next week, a 17-year high following a 25-basis-point lift in January.

The meeting comes after a downward revision to GDP, marking an annualised pace of 2.2% in the final three months of the year, significantly below the preliminary estimate of 2.8% owing to slower consumption. Household spending was also cooler than expected, reflecting the impact of elevated inflation. This slowdown in spending could prompt a more cautious approach from the Bank of Japan.

A pause gives the BoJ time to assess the impact of its January hike and the potential effects of US reciprocal tariffs. Furthermore, a gradual approach gives policymakers time to monitor Japanese companies’ wage increases, which are the largest pay increases in three decades, and whether this translates into increased consumer spending and additional inflationary pressures.

The USD/JPY has recovered from a five-month low but remains in a downward trend. A hawkish-sounding BoJ could pull the pair lower.

Federal Reserve rate decision (Wednesday)

The FOMC interest rate decision on March 19 is expected to see the central bank keep interest rates unchanged at 4.25 to 4.5%, extending the pause in rate cuts from the January meeting.

Heading into the meeting, inflation had cooled to 2.8%, and underlying inflation eased to 3.1%, supporting the view that interest rates are moving in the right direction, at least for now. Federal Reserve Chair Powell highlighted steady economic growth and a stable labour market when he spoke earlier in the month, suggesting the Fed was in no rush to cut interest rates.

The central bank has paused rate cuts as it assesses the impact of President Trump’s trade and immigration policies on the economy, particularly on inflation. Powell noted that the Fed was well-positioned to adopt a wait-and-see approach for greater clarity. This week’s cooler-than-expected CPI and PPI do not challenge this approach. However, growth concerns are rising with the Atlanta Fed’s Q1 GDP tracking at 2.4%. Will slower growth expectations cause the Fed to reassess its views over rate cuts?

The market is pricing in two rate cuts from the Fed (70 basis points in total), which means two fully priced-in cuts and a possible third. The first-rate cut is priced in for June, and the others are expected to be weighted toward the second half of the year.

Any signs of worry from Fed Powell and a more dovish stance could drag the USD lower and boost the EUR/USD above 1.10.

BoE rate decision (Thursday)

The Bank of England cut interest rates by 25 basis points in February to 4.5% in a more dovish-than-expected vote of 7 to 2. Two members voted for a 50 basis point reduction to 4.25%.

This month’s meeting comes as inflation spiked to 3% in January, up from 2.5%, marking the highest level since March 2024. Core inflation also rose to 3.7% from 3.2%. However, the UK’s GDP showed that the economy contracted by 0.1% in January, indicating a stagflation trend. The BoE cut its growth forecast to 0.75% in its previous projections.

The Bank of England is expected to leave interest rates on hold with the market pricing in a 77% chance of a 25 basis point cut in June and a further cut in November.

Signs of sticky inflation, which is expected to rise to 3.7% in Q3, mean there is still significant uncertainty surrounding the outlook for rate cuts. While sticky inflation points to a cautious stance, weak growth suggests overheating in the economy is unlikely.

The uncertainty surrounding rates supports GBP/USD, which trades at a multi-month high.

Trade big events with PrimeXBT