ON DECK FOR FRIDAY, MARCH 14
KEY POINTS:
- A tumultuous week may end with a constructive tone for risk assets
- How is US consumer sentiment holding up amid Trump’s trade wars?
- Carney’s likely first actions as Canadian PM
- China’s financing falls short
- Sterling underperforms on soft UK data
- Peru’s central bank held again
- Canada to finalize bullish, but stale readings
- Regular publishing will resume on March 24th
Stocks are finding support this morning with N.A. futures up by ½% to 1% and with similar performances across European equities after Asia rallied. Sovereign yields are under mild upward pressure. The dollar and safe havens like CHF and the yen are in retreat. Overall, it’s a constructive tone for risk assets.
It’s difficult to finger specific catalysts for today’s moves. Headlines indicate that the Dems dropped plans to trigger a US government shutdown risk, though that’s an unlikely catalyst for global equity gains in my view. Incoming Germany Chancellor Merz has reportedly struck a deal with the Greens on an expansionary fiscal package that advances earlier pledges to spend hundreds of billions of euros on defence and infrastructure—with a lot more debt; German equities are leading this morning’s gains. Canada’s contingent in US trade talks came out of yesterday’s meeting sounding enthusiastic, versus Trump’s message that he’s not backing down and so what to make of that remains uncertain. Overnight developments were rather light.
CHINA’S FINANCING FALLS SHORT
China’s financing figures were softer than the consensus guesses for February. Both new domestic currency loans and total financing across all products fell short of consensus. Having said that, aggregate financing—the sum total of all domestic and FX loans plus market issuance—is growing at the fastest pace on record in the first two months of this year from an originations standpoint (chart 1) and that is gently turning y/y growth in outstandings a touch higher (chart 2). The same is not true for yuan loan growth (chart 3) that so far this year is weaker than the last two in terms of originations while the y/y growth in outstandings continues to slow (chart 4).
STERLING HIT BY WEAK UK DATA
Sterling slipped after weaker than expected UK data. January GDP fell -0.1% m/m (consensus +0.1%). Chart 5. Industrial output fell by -0.9% m/m (-0.1% consensus) primarily due to manufacturing output (-1.1%, 0% consensus). A small saving grace was that services expanded a touch as expected at 0.1% m/m.
PERU’S CENTRAL BANK HOLDS AGAIN
Peru’s central bank held its reference rate unchanged at 4.75% last evening, matching the median consensus expectation despite a modest minority that expected a cut. The bank cited lower inflation and lower inflation expectations while saying it expects inflation to approach the middle of its inflation target range while core inflation remains around 2%. It also sounded somewhat more constructive on growth. The forward bias remained data dependent despite the signals provided by its macro views that it may be done.
UOFM CONSUMER SENTIMENT LIKELY TO SOFTEN
There is modest data risk into the N.A. session with the main risk being UofM consumer sentiment for March (10amET) that may slip in the face of Trump’s trade wars. Also watch the measures of inflation expectations.
MINOR CANADIAN UPDATES
Canada will update manufacturing and wholesale figures for January (8:30amET) that are expected to register strong growth in keeping with earlier guidance from Statcan. The data will offer a stale assessment amid forward looking risks.
PM CARNEY’S FIRST ACTIONS
Mark Carney will be officially sworn in as Prime Minister of Canada at 11amET. Among his first actions on the job will be to kill the carbon tax and then secure meetings with key international leaders. He’s reportedly off to Europe next week to build allegiances with the British and French against Trump’s trade wars. I firmly believe there is strength in numbers against Trump’s worn playbook to divide everyone. Carney is reportedly going to speak with Trump in coming days; that should be good, a rational brain meets Trump.
Advance indications leave little intrigue surrounding his cabinet appointees that will be confirmed this morning, but I like what I see on balance in the advance indications from the standpoint of what they may say about economic policy.
It’s smaller, for one thing, with a reported size in the 15–20 member range, down from the ridiculously bloated 37 under outgoing PM Trudeau.
The smaller size is perhaps/hopefully a hint at what may follow for the rest of the civil service. It is bloated by any indication. Chart 6 shows how much it has soared since outgoing PM Trudeau became leader. There are now 368,000 employees in the Federal civil service (here) which is about 43% higher than when Trudeau first became PM in 2015. Layering on the provinces would be even more explosive. Chart 7 shows the branches that have had the most growth in the federal civil service, led by the tax folks in a highly taxed country. No, trimming their numbers wouldn’t be copying the so far ill-fated DOGE efforts in the US; there has been concern about explosive growth in the Canadian civil service long predating Trump 2.0. That said, applying an 8-to-1 population factor would result in Canada’s population-adjusted federal civil service sitting about 50% larger than the 2 million in the US. Significantly reducing their numbers would have only a small effect on finances, but would be an important step toward building and selling a new fiscal framework.
Further, some lightning rods have been moved aside or moved to different roles. I like the signal provided to the resources sector by moving Guilbeault out of environment. That paves the way for Carney to “immediately eliminate the divisive carbon tax” that he once supported and that was slated to soar again on April 1st. Gosh, we might even one day be able to move oil around more freely in our own country and to other markets than the US that is clearly turning away from the world stage!
The Team Canada contingent that has been dealing with the trade file is largely intact. LeBlanc remains in cabinet amid uncertain rumours about who is to be Finance Minister. Joly remains in Foreign Affairs. Champagne remains at Innovation.
Former Deputy PM and FinMin Freeland is reportedly going to head up Transportation. Her work ethic and vast experience at Finance and in trade negotiations are an asset to cabinet but moving ahead with a different Finance leader opens Carney’s options on fiscal policy as a departure from the past policy bias.
Reports indicate there will not be a Deputy PM.
Out is the immigration minister, Marc Miller. It was his predecessor, Sean Fraser, who led the dramatic rise of immigration to Canada before Miller took over in 2023, but distancing the portfolio from both of them is likely a signal toward a continued pivot on immigration policy after years of mismanagement.
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