Busy week ahead with central bank meetings and key (geo)political events

Markets

US data screamed stagflation but markets didn’t bother this time around. A steep drop in consumer confidence (University of Michigan) coincided with a sharp rise in the year-ahead inflation expectations series and an even sharper one in the longer-term 5-10yr gauge. The former rose to the highest since 2022 (4.9%), the latter a 30-year high of 3.9%. Stocks in the US shrugged it off and with the support of the technical charts (eg. S&P500 at 23.6% retracement of the 2022-2025 rise) ended a bad week on a good note (+1.6-2.6%). Core bonds fell with Treasuries underperforming Bunds. Rates in the US rose between 3.3-6.2 bps in a bear flattening move. Bund yields added 0.2-2.7 bps in a steepener. The euro held a slight advantage over the dollar, helped higher by the deal Germany’s CDU/CSU reached with the Greens to support the debt brake reform and other (defense) stimulus initiatives. The measures will be put to vote in the outgoing parliament tomorrow. EUR/USD tried to take out 1.09 again but settled for a bit less eventually (1.0879). Sterling traded on the backfoot following a disappointing set of industrial data. EUR/GBP rallied from the 0.837 support area towards 0.841. The general risk-on was also apparent in tariff-stricken currencies such as CAD and MXN or cyclicals including AUD and NZD. Those latter currencies in particular were perhaps eying new Chinese stimulus measures. Reports/rumours lingered on Friday and authorities made an official pledge in Xinhua News state agency on Sunday. The report calls for steps to revive domestic consumption by boosting people’s incomes as well as to stabilize stock and real estate markets. Specifics are expected to be announced later today. This comes after the first set of hard data for 2025 offered a glimmer of hope (see below) for the ailing economy. The yuan as well as local stocks trade guarded though. USD/CNY rises slightly towards 7.24. Other stocks in the region are better bid while core bonds and major FX consolidate at the start of a busy week that includes a series of central bank meetings and key (geo)political cliffhangers. The Fed gathers on Wednesday and has some final input today with the February retail sales even as they won’t change the status quo decision that’s widely expected. The Fed will present updated forecasts but we expect them to come with a big uncertainty disclaimer. The Bank of Japan also decides over policy on Wednesday as does the Bank of England on Thursday, together with the Swedes and Swiss. (Geo)politics take center stage with POTUS Trump speaking with his Russian counterpart tomorrow. The German parliamentary vote is also scheduled for tomorrow while a high-stakes European defense summit is scheduled March 20-21.

News and views

Rating agency Moody’s on Friday raised the credit rating of Greece from Ba1 to Baa3. The outlook has been set at stable from positive. Moody’s was the last of the major rating agency’s to return the Greek credit rating back into investment grade territory, a symbolic step that the country is leaving behind the era of the sovereign debt crisis. The upgrade reflects Greece’s greater resilience to potential future shocks. Public finances have improved more quickly than expected. Based on the government's policy stance, institutional improvements that are bearing fruit, and a stable political environment, Moody’s expects Greece to continue to run substantial primary surpluses which will steadily decrease its high debt burden. Greece's debt-to-GDP ratio has declined by about 50 ppts since its peak in 2020 and it is down by around 27 ppts relative to pre-Covid levels. Moody’s estimates it stood at 156.1% of GDP end  2024 and projects it to decline to 148.3% and 140.6% in 2025 and 2026 respectively. The country's debt structure remains favourable, with an average term to maturity of 18.8 years, with all of the debt at fixed rates.

(Some) Chinese eco data published this morning printed stronger than expected, raising some hope that the country might have performed reasonably well at the start of the year despite the overall economic uncertainty. Retail sales (5.9% Y/Y YTD  vs 5.3% Y/Y expected), industrial production (4.0% YTD vs 3.8% expected) and fixed assets investment (4.1% YTD VS 3.2% expected) all printed stronger than expected. China publishes data for January and February combined to address statistical issues due to the timing of the Lunar New Year. On the other hand, the jobless rate rose from 5.2% to 5.4%. In its assessment, the statistical office noted the positive momentum but said that the external environment is increasingly complex and severe, domestic effective demand is weak, some enterprises face difficulties in production and operation, and the foundation for sustained economic recovery and growth is not strong enough. This is laying the groundwork for the authorities to clarify additional steps to support the economy and in particular domestic demand, probably as soon as today.

Download The Full Sunrise Market Commentary