Macroeconomics: The Day Ahead for 26 March

While the data run is anything but overwhelming, UK and Australian CPI and US Durable Goods Orders will bear some scrutiny, with the UK Spring Budget update as the focal point of the events calendar, which also has the US CBO publishing its estimate of when the US Treasury will hit the debt ceiling, numerous Fed speakers, and an expected no change rate decision from Czechia’s CNB, and the ‘Summary of Deliberations’ from the Bank of Canada’s March policy meeting. Chalco tops the busy run of Chinese corporate earnings, while there are govt bond auctions in Germany, Italy and U.S.A. Otherwise the focus will remain on the drip feed of US tariff related announcements, and whether the Black Sea ceasefire proves to be any more durable than the previously announced energy infrastructure ceasefire, on which Russia and Ukraine continue to try and work out mechanisms for implementation. The conditionality of the Black Sea ceasefire on sanctions being lifted on banks and other companies involved in other agricultural exports is a reminder that the Kremlin will make many demands for concessions, to which either or both of the Ukraine and its EU/UK supporters may be resistant.

Australia’s February monthly CPI undershot expectations of an unchanged 2.5% y/y headline and 2.8% y/y on core (Trimmed Mean) by 0.1 ppt on both measures, but this is not likely to be enough to encourage the RBA to initiate rate cuts at its April meeting rather than May, when it will have its preferred quarterly CPI readings to hand. US Durable Goods Orders are expected to see payback for the non-defence aircraft paced 3.2% m/m surge in January, with a drop of -1.0% m/m, though core orders measures are both seen up a modest 0.2% m/m. While surveys point to a drop in investment intentions, a good number of companies have been front loading orders to strengthen inventory levels to mitigate tariff related risks.

** U.K. – February CPI, Spring Budget update **

CPI is forecast to show a seasonally typical 0.5% m/m rebound, which would see headline, core and Services y/y rates edge down 0.1 ppt to 2.9%, 3.6% and 4.9% respectively, still uncomfortably high for the BoE’s MPC, even if the upward pressures are almost wholly due to energy and other administered price pressures (on which monetary policy has little or no impact). The latter are set to persist until the end of Q3, with CPI seen peaking at 3.8%, and thereafter likely to drop quite sharply back towards target. The fact that publication of PPI data has been suspended due to data quality issues (also seen in labour indicators) is not only a matter of acute embarrassment for a G7 country, but also leaves political and monetary policymakers fumbling in the dark. Chancellor Reeves has already said that she will be announcing spending cuts to meet fiscal targets, including around 10,000 layoffs and 15% cost cuts in the Civil Service. It is expected that the OBR will revise its GDP forecasts down (halving its prior estimate of 2.0% for 2025 GDP), resulting in an upward revision of £17 Bln to govt borrowing requirements, which implies the need for Reeves to cut spending by a further £10 Bln to restore some modest fiscal headroom. Given that many govt departments are already heavily constrained, the additional cuts are likely to make for even more tensions within the ruling Labour Party. The UK DMO (Debt Management Office) remit for the 2025/26 will also be closely watched, both in terms of the size of overall issuance (set to rise vs. 2024/25) and any shifts in the maturity structure (hopefully lowering long dated sales, in proportionate terms).