US: Trump Urges Republican Holdouts To United Behind GOP Megabill

There were mixed developments in the ECB’s underlying inflation metrics in March, with model-based indices softening on an annual basis but trimmed mean/weighted median series a little sticker.

• Headline PCCI - the ECB's preferred measure of medium-term underlying inflationary pressures – eased to 2.25% from 2.31% in February. It remains above the 2024 average of 1.96%.
• Core PCCI was little changed at 2.09% vs 2.11% prior, while Supercore (which only includes items that are estimated to co-move with the business cycle) fell to a 39-month low of 2.6% (vs 2.7% prior).
• The 10% trimmed mean measure was steady at 2.3%, but the 30% trimmed meant rose a tenth to 2.5%.
• Meanwhile, the weighted median index rose four tenths to 2.7%, after 2.3% in February and 2.8% in January. 

There had been some speculation the BoC could change its estimates for neutral rates at this meeting (they typically re-examine it every April), with some analysts seeing risks they would up the range by 25bp and others seeing it lowered by 25bp. Instead, the BoC left it steady at 2.25-3.25%, meaning that the current overnight rate remains exactly in the middle of the range (see section in MPR)

• The MPR takes note of the 2 trade war scenarios described elsewhere - noting that potential growth in Canada is set to slow either way. However, they conclude that the Canadian neutral rate is unchanged vs last year's estimate, due to the strong link between the Canadian and US neutral rates. In turn, the report sees US neutral rates unchanged vs last year in either trade war scenario:
• "In Scenario 1, tighter immigration policy and rising macroeconomic uncertainty offset the impact of stronger productivity growth. In Scenario 2, potential output growth is weaker than in Scenario 1, and the ratio of government debt to gross domestic product is smaller. Both factors weigh on the US neutral rate but are not large enough to move the range."
• In this regard, the MPR also notes that there are risks the Canadian and US neutral rates could decouple in future, implying a higher Canadian neutral rate: "Structural changes, such as the impact of further isolation of the US economy, could affect the link between the US and Canadian neutral rates. If Canadian borrowers become less willing or find it harder to access funding in US capital markets, they would need to turn to other markets. Since the US capital market is the world’s largest and most liquid, this could lead to higher interest rates for Canadian borrowers. This would cause the Canadian neutral rate to rise."

• There’s no sign of spillover on US rates from a hawkish reaction to the BoC holding rates in a decision that was expected on balance but with still sizeable odds of another 25bp cut.
• SOFR futures are within 0-1 tick higher since the 0945ET BoC decision vs 4.5 ticks lower for CORM5.
• Fed Funds futures cumulative cuts from 4.33% effective: 5bp May, 20bp Jun, 39.5bp Jul and 88bp Dec.
• US data also failed to move the needle earlier, with the retail sales control group missing but after an upward revision amidst some tariff front-running, a weak NY Fed services report and IP data broadly as expected with a large drag from utilities.
• Focus is on another appearance from Fed Chair Powell at 1330ET on the economic outlook (text + Q&A), having said there was no need to hurry to adjust rates after payrolls on Apr 4.  
• Before then, Hammack speaks in a Q&A including prepared remarks at 1200ET before the 20Y auction at 1300ET offers another test of duration demand.
• Trump headlines are also expected at some point in a meeting with Japan trade delegates.