Macroeconomics: The Week Ahead: 17 to 21 March 2025

The Week Ahead – Summary preview:  

The new week has a deluge of major central bank meetings (Fed, BoJ and BoE) and a large volume of major data from the US, China and UK to contend with, even if the long shadow of the Trump administration’s domestic and international policy measures will remain the dominant theme. There are the overnight run of activity and property data from China to digest, while the US looks to Retail Sales, Industrial Production, Business Inventories, NY & Philly Fed Manufacturing and various housing indicators. The UK has its labour market report, GfK Consumer Confidence and PSNB, while the Eurozone looks to final Eurozone CPI, and the German ZEW and French Business Confidence surveys, with Japan awaiting Trade, Machinery Orders and National CPI, and Australia Unemployment. The US corporate earnings schedule is light, though FedEx and Nike will attract attention, while a busier run in China includes China Unicom, Cosco Shipping, Ping An Insurance, Tencent, Xiaomi and Zijin Mining. The week ending EU Summit will inevitably focus on defence and budget rules, while there will be particular focus on the Trump-Putin ‘call’ on the Ukraine ceasefire talks, and the hope for more specific details on China’s measures to stimulate private consumption.

– China: The run of data was mixed, with the stronger than expected Retail Sales, Industrial Production and Fixed Asset Investment encouraging, though as a rule of thumb, the aggregated January/February activity data are not always a good uide to trend due to Lunar New Year timing effects. By contrast the unexpected jump in the surveyed Unemployment Rate to 5.4% (vs. expected dip to 5.1%), and the deterioration in property investment and house price data serve as a reminder of the considerable challenges to the domestic economy. The sharp improvement in Property Sales to -0.4% y/y was almost wholly due to a very large base effect.

– U.S.A.: Retail Sales are expected to recover 0.6% m/m from the unexpectedly sharp wildfire and storm related -0.9% m/m drop in January, above all due to Auto Sales, with the core ‘Control Group’ measure seen posting a more modest +0.3% after January’s -0.8%. Industrial Production is forecast to slow to 0.2% m/m, though this masks an anticipated 0.3% rebound in Manufacturing Output (Jan -0.1% m/m). Business Inventories (for January) bear some scrutiny after the very sharp jump in Imports in the Trade data, with a modest 0.3% m/m expected, and risks to the upside, though some of the surge in Imports may not show up in Inventories until February due to delivery logistics. The Philly Fed Manufacturing survey (seen at 10.0 vs. Feb 18.1) should offer a better guide to sector sentiment, than the wildly volatile NY Fed survey, while the NAHB Housing Market Index is expected to be unchanged at 42, with the fall in mortgage rates more than likely offset by economic uncertainty. That uncertainty will leave the FOMC with a particularly large messaging challenge when it meets this week. The immediate focus will be on the dot plot, which most see unchanged, and its economic projections, with PCE deflator forecasts for 2025 perhaps tweaked higher, while growth forecasts are adjusted somewhat lower. Powell will likely reprise his recent comments that the economy has been resilient, and only obliquely acknowledge the downturn in markets induced by trade wars by emphasizing that the FOMC ‘stands ready to act’ in the event of labour demand weakening, though this would be conditioned on inflation being on a sustainable path back to target. While the Fed pays more attention to the NY Fed Inflation Expectations survey (only fractionally higher), he will face questions about the very sharp rise in the Michigan survey’s 1 and 5-10 yr measures, as well as the equity market downturn. He will likely continue to emphasize that the Fed remains in ‘wait and see’ mode. There is additionally some speculation that the Fed might signal a pause in its QT (balance sheet reduction) programme, but that seems unlikely at the current juncture, primarily to avoid leaving itself hostage to fortune on its forward policy signalling.

– UK: Just ahead of the BoE’s rate decision, Thursday’s labour market indicators are forecast to show a very marginal 0.1 ppt easing in Average Weekly Earnings to 5.8% y/y and ex-Bonus 5.9% after the recent rebound, with adverse base effects not helping, but more importantly the absolute level still far above levels consistent with its 2.0% CPI target. HMRC Payrolls are seen resuming their retreat with a fall of 21K, reversing a similarly sized rise in January, with the Unemployment Rate seen holding at 4.4%. Friday’s GfK Consumer Confidence is expected to be unchanged at a lowly -20, while the PSNB is expected to underline Chancellor Reeves challenge in meeting her fiscal targets with a deficit of £7.0 Bln. The BoE MPC is seen holding rates steady at 4.50%, consistent with the cautious gradualist approach to rate cuts that it has been signalling for some time. Of interest will be the extent of those dissenting in favour of a further 25 bps cut, with Dingra, de nouveau dove Mann and perhaps Taylor in that camp. Of interest will be how the minutes depict the array of risks to the economic outlook, both from the upward pressures on inflation domestically, and the impact of escalating trade tensions on both growth and inflation.

– Japan: While there is a relatively busy run of data, the focus will be on the BoJ meeting, which is anticipated to see rates held at 0.50%, but governor Ueda likely to pave the way for a further 25 bps rate hike in May, above all given the Rengo 2025 wage settlement. Friday’s National CPI will likely reinforce that, with the expected drops in headline and core CPI to 3.5% and 2.9% y/y wholly due to food and utility prices, but core ex-Food & Energy expected to pick up to 2.6% from 2.5%. Markets will above all be focussed on signals on where the BoJ sees the end point for the current rate hike cycle, and the degree of emphasis it puts on the performance of the JPY.

– There are 10 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Accenture, Alimentation Couche-Tard, Anta Sports Products, China Shenhua Energy, China Tower, China United Network Communications, Cosco Shipping, FedEx, General Mills, Hapag-Lloyd, KE Holdings, Lennar, Micron Technology, Muyuan Foods, Nike, Ping An Insurance Group, Prudential, Talanx, Tencent, Verbund, Xiaomi, Zijin Mining.

 – Geopolitics & other themes – some perspective thoughts for a disorderly world

Let’s start with a quote from Alfred Marshall (widely seen as the father of modern economics), primarily to reinforce the point about the need for systemic, critical and lateral thinking, particularly in terms of analysing over-simplified solutions to complex problems that ignore ‘interconnectivity’, and indeed the Trump administrations’ sequencing of policy measures. In his ‘Principles’, Marshall explicitly defended his lack of exactness. After spelling out briefly the conditions that would exist in an economy in long-run equilibrium, Marshall went on to point out that: “nothing of this is true in the world in which we live. Here every economic force is constantly changing its action, under the influence of other forces which are acting around it. Here changes in the volume of production, in its method, and its cost are ever mutually modifying one another; they are always affecting and being affected by the character and the extent of demand. Further all these mutual influences take time to work themselves out, and, as a rule, no two influences move at an equal pace. In this world therefore every plain and simple doctrine as to the relations between costs of production, demand and value is necessarily false: and the greater the appearance of lucidity which is given to it by skillful exposition, the more mischievous it is. A man is likely to be a better economist if he trusts to his common sense, and practical instincts, than if he professes to study the theory of value and is resolved to find it easy.”

It is worth revisiting some of the reasons the world, (above all Western World), finds itself in the unnerving mess that it is in, outside of the previously mentioned one of Europe refusing to take on much more of the cost burden of its own strategic defence for many decades. First it has been the failure of the traditional ‘centre’ on the political spectrum to deliver reform. In many cases out of fear that it would result in popular resistance and protest, in other words a leadership failure (and above all in France, complete resistance to change, that is lodged right at the very base of France’s Iceberg of Culture, along with a toxic sense of entitlement). Secondly the latter has been compounded by not capitalizing on the opportunity of the 1990s ‘peace dividend’ (from much lower defence and security spending) and the associated ‘technological revolution’ which has transformed the world in so many ways and could have been deployed to apply much needed upgrades to infrastructure, and addressing the clearly looming challenges of a rapidly ageing demographic. Instead it was frittered away on increasingly bloated bureaucracy, and financial deregulation in the context of rudderless economic ‘laissez faire’ policies, which paved the way for the financialization and commoditization of education and healthcare (and so much else), and sowed the seeds of the 2008 Global Financial Crisis. Perhaps most misguided was the desperate response to the GFC in seeking to preserve most of what was and still is a clearly broken financial system. Instead, it facilitated via QE the monumentally socially and politically divisive spectacle of chronic asset price inflation, which helped to fuel even greater public disillusion with the body politic, and by extension the rise of populists on the extreme right and indeed left.

There is more than some irony in, and worth pondering on, a comment by Russian Foreign Minister Sergei Lavrov in a recent interview that, in the last high level meeting between the US and Russia before the invasion of the Ukraine, President Biden let slip that he was surprised at how much better countries ruled by autocrats or autocracies had dealt with getting the Covid-19 pandemic under control.

Be that as it may, President Trump continues to aggressively wield his axe to the domestic and international order, by sowing chaos, confusion and fostering a level of uncertainty that is even higher than during the pandemic. The lack of any genuine pushback from the US body politic, be that the sycophants in his administration and the Republican party, let alone the spineless and headless chickens of the Democrats should be alarming for everyone. But of greater concern is the all out assault on the US constitution and its institutions, clearly aimed at a massive ‘power grab’, and all out destruction of many of those institutions. Do bear in mind that the fathers of the US Constitution were not primarily concerned about defending ‘democracy’, but rather in protecting the country from monarchies, autocracies and oligarchs, above all given that so many of its citizens had fled Europe to escape the oppression of such regimes. It is rather moot whether the likes of Musk, Thiel, Yarvin and the array of ‘Tech Bros’ billionaires view Trump as a ‘useful idiot’ and are manouevring to install JD Vance as the ‘anointed MAGA heir’, or not, this looks to be an all out attempt to install their corporatist and authoritarian nomenklatura in the halls of power. But to quote Bill Clinton: ‘It’s the economy stupid’, and the history of those that go down the route of ‘short-term pain for long-term gain’ is one that is littered with failures, especially in a reasonably well functioning economy (so please, no counters with Argentina’s Milei, on whom the jury will remain out until the outcome of the next election). Indeed one should recall that if Argentina had not invaded the Falkland Islands, Margaret Thatcher would almost certainly have been a one term UK Prime Minister.

But out of adversity often come benefits, as per Hirschman’s ‘Hiding Hand’. Most immediately obvious has been a welcome rapprochement between the UK and continental Europe, and the seismic volte face that is being engineered on Germany’s ‘debt brake’ to facilitate defence and infrastructure spending, which should be ratified this week by the Bundestag and Bundesrat, though it will doubtless face Constitutional Court challenges brought by the AfD, both on the methodology (i.e. using the ‘old’ parliament to pass the reform) and the changes themselves.