- U.S. CPI and PPI numbers (cons. 20bps and 10bps drop respectively)
- BoC Interest Rate Decision (cons. 25bps cut to 2.75%)
- GBP GDP MoM (cons. 30bps drop to 0.1%)
- German CPI (cons. maintained at 0.4%)
Diverging U.S. and European Trends
Global markets saw sharp divergence this week, with U.S. equities slumping on tariff concerns while European markets surged on fiscal stimulus.
- U.S. Decline; The S&P 500 (-3.6%), NASDAQ 100 (-4.0%), and small caps (-4.2%) suffered their worst week since September due to tariff uncertainty on Mexico, Canada, and China.
- European Rally; Germany’s €500B infrastructure and defense plan drove DAX (+7.8%) to its strongest weekly gain since 2020.
- U.S. Yield Curve Steepens; 2-year yield at 3.96% (-3bps), 10-year at 4.28% (+7bps). February’s 151K jobs data was solid, but unemployment rose to 4.1% and part-time work hit a 4-year high. The Atlanta Fed’s GDPNow signals a 2.4% Q1 contraction, increasing expectations for 75bps of Fed cuts in 2025 (above the Fed’s 50bps median forecast).
- ECB Cuts Rates to 2.65%; While signaling a pause in easing, driven by fiscal expansion in Germany drove German 10-year bond yields up 30bps, the biggest jump since 1990.
- Germany’s Fiscal Shift; The debt brake will be amended to exclude defense spending above 1% of GDP, unlocking more funds. The ReArm Europe plan proposes a €150B defense instrument and repurposing unused funds like the €93B from NextGenerationEU + €60B from Cohesion funds per year. However, military spending has a low economic multiplier and EU domestic arms production capacity is limited, requiring ramp-up.
- 25% on all Mexican & Canadian goods; 10% on Canadian energy (USMCA tariffs delayed until April 2). 10% increase on Chinese goods to 20%.
- If proposed tariffs take effect, the effective U.S. tariff rate will hit highest level since the 1940s, potentially adding $2,000 in costs per household.
- Key sectors impacted: Autos: Mexico accounts for $95B of U.S. car imports (33% of US total imports). Energy: Canada supplies $98B in U.S. crude petroleum (50%+ of US total imports). Technology: China provides $52B in U.S. phone imports (43% of US total imports).
- The situation remained extremely fluid, with new announcements and delays in the same week. Uncertainty will persist and headlines will continue to move the market.
