CANADA: Some Analysts See April Pause After CPI But Not Yet Consensus [2/2]
Mar-19 12:28
Pause if 25% tariffs avoided/no further economic deterioration:
- BMO: “This report will reinforce the BoC's cautious tone on easing to mitigate the impact of tariffs. Note that the coming end of the carbon tax will pull inflation down sharply in April, but March could see more upside as the rest of the tax holiday impact reverses. There's plenty of noise still to come on inflation, complicating policymakers' job. We'll see what early April brings on the tariff front, but if the economic outlook doesn't deteriorate further, the BoC will be considering a pause after cutting at seven straight meetings.”
- CIBC: “The upward pressure on the BoC's core measures, as well as CPIX, is worrisome especially since this doesn't reflect the impact of tariffs yet, even if it includes the impact of the depreciation in the Canadian dollar. We await news on the April 2nd reciprocal tariff date and if a 25% tariff is avoided, the BoC will likely pause at the April meeting to gauge CPI pressures ahead.”
- National: “There is a strong chance that the rate cut we were expecting in April will not materialise unless the economy deteriorates very rapidly in a context of tariff uncertainty. It remains that inflation is a lagging indicator, and the central bank may once again focus on economic variables that could weaken rapidly in the coming months if there is no improvement in trade relations with the United States. That scenario would justify lower path for the policy rate.”
Further cuts/complicated outlook
- JPM: “While we continue to expect precautionary easing by the BoC due to the trade war, risks for a skip went up with the CPI news”
- RBC: “Today’s numbers won’t have been a surprise to the BoC – the central bank expected inflation to be 2.5% in March once the GST holiday is fully out of the data. The readings will, however, continue to complicate the central bank’s interest rate decisions.”
- TD Securities: “We ultimately believe the negative demand impacts from the trade war ought to dominate near-term concerns around inflation expectations, and as such look for the BoC to reach 2.00% by July. At the same time, this [CPI] print clearly raises the spectre of a pause in April as the Bank seeks to avoid repeating its mistake from the pandemic (while hopefully avoiding a fun new suite of mistakes). To be clear though, even in the event where the Bank views the inflation data as grounds for a pause, our bias would still be to see the easing resume later in 2025.”
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SONIA: 3.5k More Of the SFIM5 95.6 Put
Feb-17 12:20
SFIM5 95.60 put, bought for 2 in 3.5k.
- Now 7.5k total for the session.
GERMANY: Nagel Sees 1.5pp Negative Growth Impact for Germany In Tariff Scenario
Feb-17 12:10
ECB's Nagel expects the German economy to "suffer considerably" from the implementation of US tariffs per US President Trump's election campaign (tariffs on imports from China at 60 percent, while products from Germany and other countries would face 10 percent), according to his speech today in Frankfurt.
- Nagel cites a Bundesbank scenario analysis, concluding a negative impact on GDP of a cumulative 1.5pp by 2027.
- Models are more inconclusive on inflation though, with Nagel noting one only sees slight effects while another one points towards clear upwards pressure.
- We'd note that actual tariff proposals by the US administration have so far come short of the election campaign plans.
- More broadly, the uncertainty posed by tariff risks has been a common theme in commentary from other ECB officials:
- Bank of Italy Governor Panetta over the weekend: "The tariffs could produce upward pressures linked to a depreciation of the euro against the US dollar and to possible retaliatory measures from the EU [...] However, these effects could be offset by a slowdown in the global economy and by China diverting its tariffed goods to European markets'”. The net impact of US tariffs would be limited or even 'slightly negative'.
- ECB President Lagarde on Feb 10: "Greater friction in global trade would make the euro area inflation outlook more uncertain".
- ECB Chief Econ Lane on Feb 5: "Risks to economic growth remain tilted to the downside. In addition to trade policy uncertainty, lower confidence could prevent consumption and investment from recovering as fast as expected".
OUTLOOK: Price Signal Summary - Bund Futures Pierces A Trendline Support
Feb-17 11:59
- In the FI space, Bund futures are trading lower and in the process have pierced an important short-term support at 132.05, a trendline drawn from the Jan 15 low. A clear break of this line would strengthen a bearish theme and signal scope for an extension towards 131.59 next, the 61.8% retracement of the Jan 14 - Feb 5 bull leg. Below 131.59, lies 131.00, the Jan 25 low and a key support. For bulls, a resumption of gains would refocus attention on the bull trigger at 133.71, Feb 5 high.
- A bull cycle in Gilt futures remains in play and the latest pullback appears corrective for now. Last Thursday’s gains are a positive development and appears to be a bullish engulfing candle. A resumption of gains would open 94.35, the Feb 6 high and a bull trigger. Clearance of this level would open 94.75, the 76.4% retracement of the Dec 3 - Jan 13 bear leg. The next firm support to watch lies at 91.52, the Jan 24 low.
