ON DECK FOR FRIDAY, MARCH 28
KEY POINTS:
- Equities continue to soften while fearing April 2nd
- Carney to speak with Trump and provincial premiers today…
- ...after signalling a change in negotiating tactics
- Canadian GDP updates may merely be statistical artefacts
- US core PCE update to have little influence on the FOMC
- Arthur Laffer slams Trump’s tariffs
- Eurozone inflation is tracking softly so far
- Tokyo CPI lifts yen
Global markets are again playing defence as March takes its last few breaths. A wave of overnight releases with more to come in the N.A. session is largely all for naught as Tariff Man starts putting on his suit for next Wednesday’s farcical tragicomedy. Stocks are broadly lower with small losses across N.A. futures and declines of up to ¾% across Europe. Sovereign yields are gently lower across Europe, the longer end of the US curve, and the whole Canada curve. With few exceptions, the dollar is broadly firmer.
Data recaps and expectations are below. There is also a planned call between Canadian PM Carney and Trump at some point today, but no time is available. There is also a meeting between Carney, his cabinet and the provincial Premiers today to discuss next steps as part of broader consultations with business and labour groups. I rather liked Carney’s style yesterday. Gone is grovelling and bootlicking down on the banks of the Potomac while being made to look like fools chasing silly goal posts being moved around. This US administration is fundamentally protectionist. I’ll write about what is replacing Canada’s approach in my weekly.
What did Carney say? Here are some roughly transcribed snippets:
- "This is the biggest crisis in our lifetimes." Funny, but I thought that was the pandemic. Before that the GFC. Every new crisis is bigger, uglier, and scarier than anything that preceded it.
- "our response to these latest tariffs is to fight, to protect, and to build"
- Canada will retaliate with maximum impact in US and minimum in Canada.
- "there will be no turning back"
- "Nothing is off the table". It may be notable that I did not hear Carney repeat Trudeau’s language about how Canada’s reaction cannot disproportionately impact different regions and industries. That doesn’t mean that tools like export tariffs on key commodities are likely, but it adds some doubt. As I remarked yesterday, when someone attacks Canada and in this case particularly Ontario’s auto sector, the rest of the country can’t just sit back and leave it to Ontario to send troops. How un-Canadian.
- "we are all on the same page"
- "we will respond forcefully"
Overall, Carney reaffirmed that after next Wednesday's US announcements they will be able to have a fuller response. The overall tone was that of stay tuned, retaliation is forthcoming after further consultations, discussion, and seeing what unfolds next Wednesday. That could either be because they don’t have agreement on how to respond yet, or it’s a better negotiating strategy to wait until your opponent has fully revealed their hand. Playing to the latter interpretation was Carney’s remark that it doesn't make sense to respond to developments in a rapid sequence versus responding once you see everything.
ARTHUR LAFFER SLAMS TRUMP’S AUTO TARIFFS
I guess we can finally rule out Arthur Laffer—proponent of the maligned notion that tax cuts pay for themselves—as a candidate for Fed chair. Trump's hero economist just slammed his tariffs. Then again, I don't know any serious person even remotely trained in economics who supports tariffs. If this doesn't torpedo him, then his support for a carbon tax to fund a flat tax in the US would!
SOFT EUROZONE INFLATION, MIXED SPENDING
French CPI increased 0.2% m/m (consensus 0.4%). Spanish CPI increased 0.1% m/m (consensus 0.4%) with core up 2% y/y (2.1% consensus). Both countries put in among the softest m/m seasonally unadjusted increases on record when comparing across like months of March (charts 1, 2). Germany and Italy report on Monday and the Eurozone tally arrives on Tuesday.
Eurozone inflation expectations were unchanged with the 1-year measure holding at 2.6% and the 3-year gauge staying at 2.4% (chart 3).
UK retail sales beat expectations. February’s sales volumes were up by 1% m/m (-0.4% consensus) with sales ex-gas also up 1% (-0.5% consensus).
French consumer spending fell -0.1% m/m after dropping by -0.6% m/m the prior month and four times in the past five months.
YEN LIFTED BY JAPANESE INFLATION
Japanese inflation was stronger than expected and that drove a stronger yen. Tokyo CPI in March was up by 2.9% y/y (2.7% consensus) with CPI ex-food and energy up 2.2% (1.9% consensus). Core CPI in m/m SAAR terms was among the hottest readings in a while (chart 4).
THE CANADIAN ECONOMY THAT WAS
Canadian GDP for January and February (8:30amET) will be reported this morning, though they are statistical artefacts in the context of Trump’s trade belligerence. January will be about revisions to the ‘flash’ guidance Statcan provided at the end of February when they said growth was 0.3% m/m. I went a touch higher at 0.4% because the strength in trade figures after that flash indicates broader activity than other indicators suggest and because of the spillover effects of ending the Canada Post strike just before the holidays.
February GDP is dicier in that most of the limited readings we have available so far suggest risk of contraction. That itself could reverse in March as the steep drop in hours worked during February due to weather gives way to a rebound (chart 5). What lies beyond March will nevertheless be key as trade wars bite.
US CORE INFLATION IS ONLY ABOUT PASSING THE TIME
One of two readings of the Fed’s preferred inflation gauges arrives this morning on the path to the next decision on May 7th (8:30amET). Forward-looking risks and uncertainties are dominating the FOMC’s pause mindset, so treat today as a cause for market volatility and little else.
I went with 0.3% m/m for February’s core PCE reading. Take core CPI on the generous side of 0.2% m/m to start. Then consider that there is no material weighting and methodological difference when converting to PCE this time. Then add about 0.1 given what we learned about the PPI numbers. Uncertainty around seasonal adjustments and nowcast estimates suggest some caution.
The US also reports February figures for incomes and spending (8:30amET).
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