The week kicks off with PMIs

In focus today

In the euro area, we receive the flash PMI data for March, which will be crucial for the ECB's rate decision in April. We anticipate the composite PMI to rise from 50.2 to 50.6, driven by continued normalisation in the manufacturing sector. The PMIs have shown a reasonable correlation with the ZEW index, which increased in March. We expect the manufacturing PMI to rise to 48.4 from 47.6 in February, while activity in the services sector is likely to remain broadly unchanged, with the services PMI at 50.6, like February.

In the US, March Flash PMIs will also be released. Some regional leading indicators have pointed towards a downtick in the manufacturing cycle after a promising recovery over the winter.

In China, PBOC will set the policy rate overnight, the 1-year Medium-Term Lending Facility rate. We expect it to be unchanged again as we believe the central bank will continue to be sidelined for now until we move closer to another Fed cut. PBOC aims for a stable USD/CNY and thus now tends to move in tandem with Fed rate changes while using other instruments to support the economy, such as specific lending schemes for different sectors.

The US data calendar for the remainder of the week is fairly light, with the Conference Board's consumer confidence on Tuesday and the Fed's preferred measure of inflation, PCE, on Friday. In the euro area, monetary aggregates and credit data is released on Thursday, while we get March inflation data from Spain and France on Friday. In the UK, Chancellor Reeves will present the Spring Statement, and finally Norges Bank will announce their rate decision on Thursday.

Economic and market news

What happened overnight

In Japan, March PMIs were lower across the board, with all indices creeping below the 50-threshold. The manufacturing measure stood at 48.3, recording the lowest reading in a year, while the services counterpart slipped to 49.5. The composite measure fell to its lowest level since August 2020 at 48.5, with firms stating concerns over rising costs, labour shortages and the global trade environment.

BoJ Governor Ueda emphasized that the BoJ will proceed to raise interest rates if the underlying inflation target is likely to meet the 2% target, despite potential losses on its government bond holdings. We forecast the BoJ to deliver two additional 25bp rate hikes this year, with the next likely in July.

What happened over the weekend

In the US, NY Fed's President Williams (hawk and voter) said on Friday that the US central bank's "Modestly restrictive" monetary policy is suitable amidst economic uncertainties - with Chicago Fed President Goolsbee (dove and voter) also sharing similar views. We still look for the next cut in June, followed by quarterly 25bp reductions until the terminal rate of 3.00-3.25% is reached in June of 2026. For more details, please see Research US - Fed review: Cautious stability, 19 March.

On Friday, President Trump called his 2 April reciprocal tariffs "the big one" but signalled there will be flexibility. At the beginning of his term, Trump ordered a comprehensive study into unfair trade practices by other countries, and the results are set to be finished by 1 April. The findings will guide the reciprocal tariffs that will be implemented on a country-by-country basis. Currently the uncertainty remains large about what they might look like; for instance, Trump has previously likened the EU's VATs to a tariff against US imports.

In the euro area, consumer confidence declined to -14.5 (cons: -13.0) from -13.6 in February. Consumer confidence is one of the tier-2 data points that feed into the ECB's decision in April, and the continued weak consumer confidence questions the uptick in private consumption that ECB expects to drive growth this year. Hence, in isolation it was a dovish signal. Following a large increase last year, consumer confidence has fallen in 2025 especially due to consumer's view on the general economic situation over the next 12 months while they are less negative about their personal financial situation. 

Moreover, ECB's Stournaras was on the wire, stating that he still sees 2 more cuts in 2025 with a terminal rate of 2%. Importantly, Stournaras is one of the doves and the fact that he only expects rates to come down to 2% suggests that we might not get more than that.

In Germany, the upper house of parliament, the Bundesrat, passed the large fiscal spending bill. Hence, Germany has now changed their constitution to allow higher defence spending, created an EUR 500bn off-budget fund for infrastructure, and eased the regional state budgets. For our assessment of the implications of the package, please see Research Germany - Fiscal policy to boost growth but also inflation concerns, 19 March. 

In Canada, PM Carney has called for a snap election on 28 April. It is expected to be a close race between Liberals (PM Carney) and the Conservatives. The Conservatives initially held a substantial lead, but recent political influence of Trump has significantly diminished their advantage.

In geopolitics, Ukrainian and US officials commenced discussions aimed at securing energy facilities and critical infrastructure in Saudi Arabia on Sunday. Despite optimism from the US, both Ukraine and Russia have reported overnight strikes, highlighting the fragile nature of the proposed 30-day ceasefire. According to Bloomberg, the US administration hopes to reach a broad ceasefire within weeks, with plans for a truce agreement by 20 April. For our perspective on the market impacts of a Ukraine deal, please see Research Global - What would a dirty deal in Ukraine mean for markets, 16 February.

Equities: Global equities ended slightly lower on Friday. More importantly, last week equities managed to halt the decline and ended higher for the week. In our opinion due to fewer tariff announcements. The centre of the storm, US tech, performed better, a trend that continued Friday. Additionally, the VIX index subsided and concluded the week below 20.

While we must wait for the message on new tariffs on 2 April, and it is too early to determine whether all the political turmoil has had a lasting negative effect on consumers and corporations, we can still conclude for the moment that no news is good news, for risky assets, which was essentially the message last week. In the US on Friday, Dow +0.1%, S&P 500 +0.1%, Nasdaq +0.5%, Russell 2000 -0.6%. This morning, Asian markets are mostly lower. Japanese markets have just turned positive despite a disappointing set of both manufacturing and service PMIs this morning. European and US futures are higher this morning, led by the US and growth/tech sectors.

FI&FX: The USD had a strong end to the week, posting a third consecutive day of strengthening with EUR/USD briefly trading below 1.08 before closing just above. Front-end UST yields traded a few bp lower, driving a slight steepening. Despite the USD support, both SEK and NOK showed strong performance with EUR/SEK below 11.00 and EUR/NOK at 11.40, leaving NOK/SEK above 0.96 once again. Last Friday, we published our monthly FX Forecast Update, where we maintain a bearish medium-term outlook for EUR/USD and continue to see headwinds for both the SEK and NOK.