Overview: 

While global stock markets and major sovereign bond yields have largely opened higher at the start of the week on chatter that Trump’s retaliatory tariffs announcement on 2 April might be somewhat better targeted than previously feared, the economic dataflow, including today’s flash PMIs, remains decidedly mixed. Looking ahead, alongside the political and geopolitical noise, investors will respond to further economic sentiment surveys and various inflation data including:

*  In the US, based on CPI and PPI inflation components, Daiwa America economists expect the headline and core PCE price indices (Friday) to rise 0.3%M/M. That would leave the annual headline rate steady at 2.5%Y/Y, but push the core rate up 0.2ppt to 2.8%Y/Y. Updated inflation expectations estimates from the UoM consumer survey will be closely watched (also Friday), while the Conference Board consumer survey (Tuesday) and advance goods trade figures (Thursday) will both likely be further impacted by policy uncertainty. 

*  In the UK, the Chancellor’s Spring Statement (Wednesday) will likely confirm the government’s intention to cut spending from previous plans as recent higher-than-expected public sector borrowing amid soft growth and higher Gilt yields erode fiscal headroom. Data-wise, we expect February’s CPI report (also Wednesday) to show that headline and core inflation remained steady at 3.0%Y/Y and 3.7%Y/Y respectively, but the services component should moderate below the BoE’s expectation.       

*  Contrasting an encouraging pickup in the UK survey this morning, the euro area PMIs signalled minimal growth momentum at the end of Q1 as subdued services activity offset a pickup in the manufacturing output component to a near-three-year high. The German ifo survey (Tuesday) might nevertheless report improved business expectations boosted by the prospect of higher public spending. But the Commission sentiment survey (Friday) will likely confirm a deterioration in consumer confidence. Flash March inflation estimates from France and Spain (Friday) are also due.         

*  In Japan, after the BoJ last week signalled that it still expects to raise rates further in due course, Tokyo inflation figures (Friday) are expected to show a slight easing in the headline rate due to government policies, while core inflation likely remained steady and close to 2%.  

Day-by-day key economic data & macroeconomic events

Today:
The flash March PMIs from the major economies provided some mixed messages about economic conditions at the end of Q1. There was a notable decline in the Japanese composite output PMI – down 3.4pts to a three-year low of 48.5 – with a broad-based deterioration in manufacturing and services sentiment due in part to rising inflationary pressures and heightened trade uncertainties. Meanwhile, the euro area PMIs fared only slightly better in March, with the composite index edging up to a seven-month high (50.4) but still consistent with an absence of meaningful growth momentum. Perhaps reflecting front-loading ahead of the announcement of retaliatory US tariffs, the manufacturing output component jumped to a near-three high (50.7), with the respective German index up more than 3pts to 52.1. But growth in the services sector remained very soft (50.4). In marked contrast, the UK composite PMI surprised to the upside in March, jumping 1.5pts to a six-month high (52.0), as better weather likely gave a welcome boost to services demand (53.2) to offset a marked deterioration in manufacturing output (to a 17-month low of 44.6).    

Tomorrow:
Sentiment surveys will dominate again tomorrow. Like last week’s ZEW investor survey, Germany’s ifo indices might reflect improved business expectations in light of the government’s fiscal reforms to boost spending on defence and infrastructure. But they will also likely signal that activity remained sluggish at the end of Q1. The UK’s CBI retail survey is expected to suggest that sales volumes remained weak for the time of year in March amid subdued consumer confidence. Meanwhile, in the US, the Conference Board consumer confidence survey will provide a cross check for the deterioration in the University of Michigan sentiment indices this month.

Wednesday:
A key focus in the UK will be the Chancellor’s Spring Statement. With public sector borrowing in the financial year to February tracking almost £15bn higher than the OBR expected in October and higher Gilt yields having eroded the government’s so-called ‘headroom’ relative to its fiscal rules, Chancellor Reeves will likely confirm the government’s intention to cut public spending relative to previous plans, including cuts ro welfare spending and in civil service headcount. Meanwhile, we expect the February CPI report to show that UK headline inflation held steady at 3.7%Y/Y – a touch firmer than the BoE’s forecast – but that services inflation moderated slightly (down 0.2ppt to 4.8%Y/Y) to be tracking a touch below the BoE’s latest projection. In the US, durable goods orders data for February are expected to report some payback for transport-related boost in January – indeed, excluding transportation, orders are expected to remain broadly flat for a fifth consecutive month.

Thursday:
A relatively quiet day for global top-tier releases will bring euro area monetary figures for February. The further cut to ECB rates at the start of the year and the recent turnaround in the housing market might support ongoing recovery in mortgage lending that month. But given uncertainty surrounding US trade policy we wouldn’t be surprised to see little increase in demand for business lending last month. In the US, advance goods trade numbers for Februarywill be watched closely for further signs of front-loading ahead of tariff hikes after imports jumped 12½%M/M and push the deficit to a record high in January. Meanwhile, updated estimates of Q4 GDP are expected to align with growth of 2.3%Q/Q annualised previously recorded, which was supported by strong household consumption.

Friday:
In a busy end to the week, one highlight will be the US PCE deflators, the Fed’s preferred inflation measure. Based on CPI and PPI components, both headline and core PCE price indices are expected to rise 0.3%M/M in February. While this would leave the annual headline rate steady at 2.5%Y/Y, the core rate is expected to rise 0.2ppt to 2.8%Y/Y. Updated household inflation expectations will also be watched in the University of Michigan survey. Inflation will also be in focus in Japan, with the Tokyo headline CPI rate expected to ease slightly to 2.7%Y/Y in March. Excluding fresh food and energy, core inflation is to remain unchanged and close to the 2% target. Flash March inflation estimates from France and Spain are also due. While the French HICP rate might edge slightly higher from February’s four-year low (0.9%Y/Y), the Spanish HICP rate is expected to drop 0.3ppt to 2.6%Y/Y. The European Commission survey will provide an update on inflation expectations, as well as a cross check on today’s flash PMIs on economic sentiment – the deterioration in Friday’s flash estimate of consumer confidence might limit any further improvement in the headline economic sentiment indicator. Finally, in the UK, retail sales figures for February and postponed trade data for January will provide an update on growth momentum at the start of the year.