2025 Weekly Update

Market update

The S&P 500 closed the week at 5,638.94, -2.27% lower. The Dow Jones closed at 41,488.19, -3.07%, with the Nasdaq lower by -2.43%. The volatility index VIX closed the week at 21.77, down from 23.37. The Euro Stoxx 600 fell -1.22%.

The 10-year UST closed at 4.31%, up from 4.30% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 2bps. US Corporate Bond spreads: Investment Grade spreads widened +10bps at 169bps and High Yield spreads widened +35bps at 372bps. German 10-year Bunds yield closed at 2.87% up from 2.84% a week before. In Europe, corporate Investment Grade spreads widened +7bps at 104bps and High Yield widened +27bps at 327bps.

The US Dollar Index (DXY) depreciated -0.12% last week and closed at 103.72. The Euro closed at 1.0879 (+0.42%); the Yen depreciated -0.41%, closing at 148.64 and the Swiss Franc depreciated -0.59%, closing at 0.8851. Gold closed at $2,984.16, appreciating +2.58%. Oil was higher, Brent closed at $70.58 (+0.31%) and WTI at $67.18 (+0.21%).

Macroeconomy

US CPI

Feb. numbers were the mirror image of the previous month, as both headline and core CPI surprised on the downside. For instance, headline CPI fell to just +0.22% on the month (vs. +0.3% expected), which pushed the y-o-y rate down to +2.8% (vs. +2.9% expected). That monthly print was the weakest since August, and it meant the 3-month annualized rate finally moved down to +4.3%, ending a run of 6 consecutive increases. Core CPI also came in below expectations, with the monthly number at +0.23% (vs. +0.3% expected), which pushed the y-o-y rate down to +3.1% (vs. +3.2% expected).

Fed preview

The Fed is expected to meet on Wednesday. Investors are expecting the committee to downgrade 2025 GDP growth, raise inflation, and see higher uncertainty. The dot plot should show unchanged median of two rate cuts, with risk of one. Powell is expected to signal the Fed is not in a rush to move as they can either hold or cut if growth/labor market deteriorates. Therefore, the statement should downgrade the description of economic activity. All eyes will be on the path of quantitative tightening, with some investors expecting a pause in QT beginning in April.

US data

The University of Michigan survey showed weaker consumer confidence (at 57.9, versus forecast of 63.0, prior 64.7) and higher inflation expectations - showed 1yr expectations rising to +4.9% (vs. +4.3% expected), their highest since Nov. 2022. The 5-10yr expectations also jumped up to a 32-year high of +3.9% (vs. +3.4% expected). The UoM survey continues to show extreme polarization along party lines but the rise in expectations overall and from independent voters is starting to be a concern. Also, the NY Fed’s latest consumer survey added to evidence of deteriorating US consumer sentiment. The share of households expecting a worse financial situation one year from now rose to 27.4%, the highest since Nov. 2023. Inflation expectations were broadly steady. The NFIB’s small business optimism index was broadly as expected at 100.7 (vs. 101.0 expected). However, there were fresh signs of inflationary pressures, as the share of firms raising average selling prices moved up to a net +32%, highest since May 2023. The JOLTS report showed that the US labor market was in better shape than thought in Jan., with job openings up to 7.740m (vs. 7.6m expected). The quits rate of those voluntarily leaving their jobs was up to a 6-month high of 2.1%, again suggesting that workers remained confident in their prospects.

Bank of Japan

The Bank of Japan is expected to meet this Wednesday holding its key interest rate steady, with over two-thirds of economists expecting a 25bps hike to 0.75% in the third quarter, most likely in July, a Reuters poll showed. Markets are pricing in a quarter point rate hike in Japan by around September or October and see about a 25% chance of another hike after that, with a total of 31.4bps of rate increases priced in by December. In terms of latest economic data, Japan’s household spending rose +0.8% y-o-y in Jan. worse than the +3.7% market forecast and down from a +2.7% increase the prior month. Meanwhile, the final Japanese Q4 GDP slowed to +2.2% on an annualized basis (vs. +2.8% expected). On a q-o-q basis, GDP expanded +0.6% (vs. +0.7% expected), compared to the +0.7% preliminary data.

Bank of England

The Bank of England meeting is scheduled for Thursday. Investors expect the BoE to remain on hold and maintain its gradual and careful approach, leaving the policy rate unchanged at 4.5%. However, since the last meeting, a shift has been seen in some MPC members' stance, becoming less dovish. Notably, members Taylor and Ramsden now perceive inflation risks as two-sided, rather than solely to the downside. Economic uncertainties remain high, with forthcoming data poised to assess the impact of the Autumn Budget measures.

Swiss National Bank

The Swiss National Bank will hold its next quarterly meeting on Thursday. Markets expect a rate cut to its policy rate by 25bps to 0.25%. Risks are tilted towards a pause, given fiscal spending plans from the EU and Germany, and the depreciation of the CHF. Regarding inflation, Swiss headline CPI slightly declined to +0.3% y-o-y in Feb., tracking broadly in line with the SNB's Q1 forecast of +0.3%.

Other central banks

The Bank of Canada delivered a 25bps rate cut last week, taking their overnight rate down to 2.75%, in line with expectations. Their statement acknowledged the ongoing trade war, saying that “heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada”. The statement also acknowledged that they would need to assess “the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs”.

China data

Industrial output accelerated at a faster pace in the first two months of 2025, advancing +5.9% (vs. +5.3% expected) while retail sales rose by +4.0% in the Jan.-Feb. period from a year ago, against market expectations for a +3.8% y-o-y growth. Fixed asset investment rose by +4.1% on a YTD basis, beating the +3.2% growth estimated by Bloomberg. The unemployment rate rose to 5.4% in Feb. (vs. +5.1% expected), the highest level in two years. Meanwhile, new home prices dipped -0.1% vs. a month earlier after two months of relatively steady prices indicating that the nation’s property slump lingers despite the country’s latest efforts to prop up the market. Used-home prices dropped -0.34%, the same pace as the previous month, and fell -0.1% from Jan. in top-tier cities.

Highlights

On rates

There were big moves in sovereign bonds despite US Treasury yields ending the week nearly unchanged. The 10yr US Treasury yield increased +1.1bps to 4.31%. Yields traded as low as 4.15% on Tuesday but rose at the end of the week after the University of Michigan survey showed an increase in inflation expectations. As a result, Fed expectations shifted in a hawkish direction, with the market pricing in 65bps worth of rate cuts in 2025, down from a recent peak of 80bps. It was also a volatile week for European sovereign bonds. Yields on the 10yr Bund increased +3.9bps to 2.87% after Germany’s Chancellor-to-be Merz agreed a spending deal with the Greens.

What to watch

• Monday: China Feb. Macro; Singapore and India Exports; US Retail Sales, Empire Manufacturing
• Tuesday: EU Trade Balance; Germany ZEW Survey; Canada CPI
• Wednesday: Bank of Japan Policy Meeting; Japan Exports; EU CPI; US FOMC, US Housing Starts
• Thursday: China Loan Prime Rate; Australia Employment; New Zealand GDP; Taiwan Exports; Policy Meetings for BoE, SNB & Riksbank; UK Weekly Earnings and Employment; US Initial Jobless Claims
• Friday: Japan CPI; EU Consumer Confidence