UK inflation gives a Silver lining for Chancellor ahead of spring statement

Notes/observations

- European equities wobbled as markets braced for impending US tariffs (effective April 2nd), with Trump’s “dirty 15” list and auto levies in focus. Reports of a phased tariff plan and potential exemptions offered limited relief. Latest reports flag US tariffs on copper, with President Trump hinting at selective relief for some countries while auto levies and a “dirty 15” remain in focus.

- UK inflation eased to 2.8% in February from 3.0%, beating expectations, though sticky services prices at 5% signal persistent pressures. Traders priced ~70% odds of a May cut. Focus now shifts to Chancellor Reeves’ Spring Statement (12:30 GMT), with expectations of austere spending cuts (£1.6B shortfall flagged) and OBR downgrades. FTSE 100 edged up on weaker GBP and commodity strength (copper, oil), but homebuilders (Vistry -11%) tanked on dividend cuts.

- Positive geopolitical developments with Russia-Ukraine agreeing to halt Black Sea force but some unconfirmed press reporting drone’s being shot down overnight after the agreement was signed.

- Asia closed higher with KOSPI outperforming +1.1%. EU indices -0.7% to flat. US futures -0.1% to -0.2%. Gold -0.1%, DXY 0.0%; Commodity: Brent +0.6%, WTI +0.6%; Crypto: BTC +0.8%, ETH -0.5%.

Asia

- South Korea Mar Business Manufacturing Survey: 91.9 v 90.1 prior; Non-Manufacturing Survey: 82.9 v 81.7 prior.

- Japan Feb PPI Services Y/Y: 3.0% v 3.1%e.

- Australia Feb CPI Y/Y: 2.4% v 2.5%e; CPI Trimmed Mean Y/Y: 2.7% v 2.8% prior.

- Australia AOFM to issue ~A$150B in Treasury Bonds in 2025-26 compared to ~A$100B in prior FY.

Europe

- ECB’s Villeroy (France) stated that the pace and extent of ECB rate cuts remained open. Fresh budget spending on defense and infrastructure not necessarily inflationary. Market expectations of 2.0% Deposit rate is possible by end of summer.

- ECB Panetta (Italy) FT Op-ed stressed that must remain pragmatic in setting interest rates.

Americas

- Moody's: US fiscal strength is on course for continued, multiyear decline.

- Fed's Goolsbee (voter) noted that the next cut might take longer than anticipated; Saw borrowing costs a 'fair bit lower' in 12-18 months.

Energy

- Weekly API Crude Oil Inventories: -4.6M v +4.6M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.63% at 549.12, FTSE +0.02% at 8,665.27, DAX -0.72% at 22,938.45, CAC-40 -0.77% at 8,046.25, IBEX-35 -0.47% at 13,440.99, FTSE MIB -0.48% at 39,196.00, SMI -0.76% at 12,931.60, S&P 500 Futures -0.15%].

Market focal points/key themes: European indices open generally higher, but quickly turned around to trade generally lower; press reports around tariffs seen sapping risk appetite; among sectors managing gains are energy and utilities; sectors pulling to the downside include health care and industrials; oil & gas subsector supported after White House announces tariffs related to Venezuelan oil exports; focus on UK Chancellor’s Spring Statement as well as US durable goods coming out later in the day; reportedly MFE to review bid for Proseiben; Prysmian to acquire Channell Commercial; earnings expected in the upcoming US session include Pirelli, Cintas and Paychex.

Equities

- Consumer discretionary: Bike24 [BIKE.DE] +19.0% (FY results), Evoke [EVOK.UK] -15.0% (FY results), Ocado [OCDO.UK] +15.0% (analyst upgrade), Bakkavor [BAKK.UK] +5.5% (Greencore said to have raised offer for Bakkavor following prior rejections - post close).

- Energy: TotalEnergies [TTE.FR] +0.5% (analyst upgrade).

- Industrials: Barratt Redrow [BDEV.UK] +0.5% (rising BOE rate cuts bets), Wacker Neuson [WAC.DE] -1.0% (FY results), FACC [FACC.AT] -2.0% (FY results).

- Real Estate: Vistry [VTY.UK] -4.5% (FY24 results), Aroundtown Property [AT1.DE] -5.0% (FY results, beats estimates).

Speakers

- Sweden Central Bank (Riksbank) Mar Minutes noted that Growth prospects in Sweden remained positive. Inflation had been unexpectedly high in recent months but reason to believe that the recent upturn in inflation was temporary. Realignment of US foreign and security policy was adding to the uncertainty.

- Swiss KOF Institute Spring Economic Forecast cut the 2025 GDP growth from 1.7% to 1.4% while raising the 2026 GDP growth forecast from 1.7% to 1.9%.KOF maintained 2025 CPI forecast at 0.5% and maintained 2026 CPI at 0.6% (both years below target, SNB has a 2% inflation target).

- Sweden NIER Think Tank Economic Forecasts raised the 2025 GDP growth from 1.2% to 1.7% and set 2026 GDP growth at 2.9%. Forecasts raised 2025 Headline CPI from 1.7% to 2.5% and raised 2026 Headline CPI from 1.5% to 1.7%.

- German Constitutional court ruled on €75B levy case and upheld the reunification tax.

- BOJ's Koeda inaugural comments noted that the central bank’s mandate was to contribute to a healthy economy. Saw positive steps in wages and inflation. Hard to directly calculate the neutral rate but the real rate was significantly low. Various indicators showed Japan’s underlying inflation moving sustainably towards 2% target%.

Currencies/fixed income

- USD was steady and in tight ranges during the European morning. Some easing of concerns over tariffs continued to give investors short-term optimism and volatility had steadied.

- GBP/USD fell by 20 pips following softer-than-expected Feb CPI data. The key service sector price index remained stubbornly fixed at 5%. BOE futures currently pricing ~75% chance for May rate cut compared to 58% pre-data release. Focus on UK Chancellor Reeves budget speech where she faced difficult balancing act. The bigger test for the UK bond market would be how it reacts to the Spring Statement, in particular the growth forecasts and Gilt Remit.

- EUR/USD was below the 1.08 level with little impetus for fresh position taking.

- USD/JPY drifted lower after the new BOJ Board member Koeda made her first public comments. She stated that real rate was significantly low. Piar holding above 150 level by mid-session.

- 10-year German Bund yield at 2.78% and 10-year Gilt yield at 4.71%. 10-year Treasury yield at 4.32%.

Economic data

- (NL) Netherlands Q4 Final GDP Q/Q: 0.4% v 0.4% prelim; Y/Y: 1.9%e v 1.8% prelim.

- (UK) Feb CPI M/M: 0.4% v 0.5%e; Y/Y: 2.8% v 3.0%e; CPI Core Y/Y: 3.5% v 3.6%e; CPI Services Y/Y: 5.0% v 4.9%e; CPIH Y/Y: 3.7% v 3.8%e.

- (UK) Feb RPI M/M: 0.6% v 0.7%e; Y/Y: 3.4% v 3.5%e; RPI (ex-mortgage payments) Y/Y: 3.0% v 3.2% prior; Retail Price Index: 394.0 v 394.5e.

- (SE) Sweden Feb Trade Balance (SEK): 14.4B v 14.5B prior.

- (NO) Norway Feb Credit Indicator Growth Y/Y: 3.6% v 3.6% prior.

- (FR) France Mar Consumer Confidence: 92 v 94e.

- (ES) Spain Q4 Final GDP Q/Q: 0.8% v 0.8% prelim; Y/Y: 3.4% v 3.5% prelim.

- (SE) Sweden Mar Consumer Confidence: 89.8 v 94.6 prior; Manufacturing Confidence: 96.4 v 95.6 prior; Economic Tendency Survey: 95.2 v 96.7 prior.

- (CH) Swiss Mar UBS Expectations Survey: -10.7 v +3.4 prior.

- (UK) Jan ONS House Price Index Y/Y: 4.9% v 4.6% prior.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B indicated in 3-month, 6-month and 12-month bills.

Looking ahead

- (CO) Colombia Feb Retail Confidence: No est v 21.6 prior; Industrial Confidence: No est v 2 prior.

- (BR) Brazil Feb Central Govt Budget Balance (BRL): No est v 84.9B prior.

- 06:00 (FR) ECB’s Villeroy (France).

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (SE) Sweden to sell combined SEK5.0B in 2029 and 2035 Bonds.

- 06:00 (IT) Italy Debt Agency (Tesoro) to sell €2.5-3.0B in 2.55% Feb 2027 BTP Bonds.

- 06:00 (IT) Italy Debt Agency (Tesoro) to sell €1.0-1.5B in 1.50% May 2029 inflation-linked bonds (BTPei).

- 06:00 (GR) Greece Debt Agency (PDMA) to sell 6-month Bills.

- 06:30 (DE) Germany to sell combined €2.0B in 2041 and 2046 Bunds.

- 07:00 (US) MBA Mortgage Applications w/e Mar 21st: No est v -6.2% prior.

- 07:00 (BR) Brazil Mar FGV Construction Costs M/M: 0.4%e v 0.5% prior.

- 07:00 (IL) Israel Jan Manufacturing Production M/M: No est v 2.6% prior.

- 07:00 (CZ) Czech Republic to sell combined CZK11.0B in 2031, 2036 and 2040 Bonds.

- 07:00 (RU) Russia to sell OFZ Bonds.

- 07:30 (BR) Brazil Feb Current Account Balance: -$9.0Be v -$8.7B prior; Foreign Direct Investment (FDI): $5.5Be v $6.5B prior.

- 08:30 (US) Feb Preliminary Durable Goods Orders: -1.0%e v +3.2% prior; Durables (ex-transportation): 0.2%e v 0.0% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.2%e v 0.8% prior; Capital Goods Shipments (non-defense/ex-aircraft): +0.3%e v -0.3% prior.

- 08:30 (UK) Chancellor of the Exchequer Presents the Spring Budget Statement.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 09:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave 2-Week Repurchase Rate unchanged at 3.75%.

- 10:00 (US) Fed’s Kashkari.

- 10:30 (US) Weekly DOE Oil Inventories.

- 10:45 (CZ) Czech Central Bank (CNB) Gov Michl post rate decision press conference.

- 11:30 (UK) DMO Consultation Minutes for Apr-Jun quarter.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 11:30 (US) Treasury to sell -Year FRN Reopening.

- 12:00 (RU) Russia Feb Industrial Production Y/Y: 1.2%e v 2.2% prior.

- (BR) Brazil Feb Central Govt Budget Balance (BRL): No est v 84.9B prior.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 13:10 (US) Fed’s Musalem.

- 13:30 (CA) Bank of Canada (BOC) Summary of Deliberations (Mar Minutes).

- 14:00 (IT) ECB’s Cipollone (Italy).

- 21:30 (CN) China Feb Industrial Profits YTD Y/Y: No est v -3.3% prior.

- 23:00 (TH) Thailand Central Bank to sell THB 20B in Nov 2026 Bonds.

- 23:35 (JP) Japan to sell 40-Year JGB Bonds.