GERMAN DATA: US Tariff Policy Unsurprisingly Weighs On ZEW Expectations
The German April ZEW survey saw a much weaker-than-projected Expectations component at -14.0 (vs 10.0 cons, 51.6 prior). Unsurprisingly, the “erratic changes in the US trade policy are weighing heavily on expectations in Germany, which have sharply declined”. The DAX index – for which monthly changes closely correlate with ZEW Expectations – fell 20% between March 18 and April 7, but has since retraced around half of this pullback. The survey was conducted between April 7 and April 14.
- The pullback in the Expectations component was the largest since the inception of the Russia/Ukraine war in 2022.
- The press release notes that “export-intensive sectors, such as the automobile and chemical industries as well as the metal, steel and mechanical engineering sectors, which recently enjoyed improved prospects, are affected”.
- The Current Situation component was slightly stronger-than-expected at -81.2 (vs -86.9 cons, -87.6 prior), continuing the recovery from cycle lows of -93.1 in December 2024.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
