2025 Weekly Update

Market update

The S&P 500 closed the week at 5,580.94, -1.53% lower. The Dow Jones closed at 41,583.9, -0.96%, with the Nasdaq lower by -2.59%. The volatility index VIX closed the week at 21.65, up from 19.28. The Euro Stoxx 600 fell -1.38%.

The 10-year UST closed at 4.25%, unchanged from last week. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -5bps. US Corporate Bond spreads: Investment Grade spreads widened +5bps at 166bps and High Yield spreads narrowed -5bps at 360bps. German 10-year Bunds yield closed at 2.73% down from 2.76% a week before. In Europe, Corporate Investment Grade spreads widened +2bps at 103bps and High Yield widened +15bps at 339bps.

The US Dollar Index (DXY) depreciated -0.04% last week and closed at 104.04. The Euro closed at 1.0828 (+0.09%); the Yen depreciated -0.35%, closing at 149.84 and the Swiss Franc appreciated +0.23%, closing at 0.8808. Gold closed at $3,085.12, appreciating +2.08%. Oil was higher, Brent closed at $73.63 (+2.04%) and WTI at $69.36 (+1.58%).

Macroeconomy

Personal consumption expenditures

It was widely expected that the February PCE price index might be a little hot. In the last CPI inflation report, the components that feed into PCE were higher than anticipated. However, Friday’s PCE exceeded those expectations. Core PCE was up +0.4% in Feb. (vs. +0.3% expected), which pushed the y-o-y rate up to +2.8% (vs. +2.7% expected), and marked the biggest monthly rise since January 2024. Within the numbers, the personal savings rate by US households rose for the second consecutive month to 4.6%. Consumption was up, but by less than anticipated - even though there was a large jump in consumption of durable goods from the previous month suggesting some front-running of tariffs. Shortly after, the University of Michigan’s survey also showed long-term inflation expectations hitting a 32-year high, with 5-10 year expectations coming in at 4.1% on the final print, two-tenths above the preliminary reading.

US consumer

Results from the University of Michigan survey concluded with a slump in consumer expectations reading at 52.6 (vs. forecast at 54.1). Earlier, the Conference Board’s indicator showed an unexpectedly large drop in consumer confidence to 92.9 in March (vs. 94.0 expected), leaving it at its lowest level since January 2021, back when the economy was still emerging from the pandemic. The expectations measure fell to a 12-year low of just 65.2. So that took it beneath its 2022-lows, when the Fed were still hiking rates aggressively and CPI inflation was running above 8%. Despite that reading, the labor market measures were still holding up. For instance, the differential between those saying jobs were plentiful versus hard to get moved up slightly in March, to a net +17.9%. Lastly, the US GDP growth was revised down further. According to the Atlanta Fed, the US economy is expected to contract by 2.8% on a quarterly annualized basis for Q1, a deterioration from previous forecast of -1.8% made on Wednesday (March 26th).

PMIs

US March composite PMI came up at 53.5 (vs. 50.9 expected), which ended the monthly declines seen in January and February. The input prices index was up to 60.9, the highest since April 2023. the flash PMIs were generally a bit weaker than expected, even though they did improve for the most part. The aggregate Euro Area composite PMI came in at 50.4 (vs. 50.7 expected). On the bright side, that was actually a 7-month high, but it was still barely above the 50-mark that separates expansion from contraction, so it was hard for investors to get too excited by that. At the country level, Germany’s composite PMI moved up to a 10-month high of 50.9 (vs. 51.1 expected), but France’s remained in contractionary territory at 47.0 (vs. 46.1 expected). Interestingly, the UK saw a decent outperformance with the composite PMI up to a 6-month high of 52.0 (vs. 50.5 expected). In China, the official manufacturing activity expanded at its fastest pace in a year, coming in at 50.5 in March (vs. 50.4 expected), picking up slightly from 50.2. The increase was more apparent with the non-manufacturing PMI data, which grew 50.8 in March, (vs. 50.6 expected) and accelerating from the 50.4 seen the month before. This saw the Chinese composite PMI advance to 51.4 in March from 51.1 in February.

EU data

Euro area bank and credit data from February confirm that the bank lending cycle is on the upswing in Europe. The details were quite positive, with a strong increase in lending for house purchases and long-duration loans for corporates. While uncertainty around tariffs could impact corporate lending dynamics, if the ECB continues easing its monetary policy, that should support household investment and consumption.

UK public finances

In her Spring Statement, Chancellor Reeves outlined a series of measures to restore her fiscal targets to levels comparable to October 2024. The government anticipates a £10Bn surplus in the current balance by 2029-30, although projections indicate a higher surplus on average due to the measures being backloaded. The restoration of the fiscal targets has been achieved through cuts in welfare budgets and adjustments in departmental spending, which will entail cuts in current spending by 2029-30 but increase in capital spending, as well as expected improvement in tax collection. The statement also confirmed an increase in defense spending to 2.5% of GDP by 2027-28 (+0.3pp), with plans to reach a 3% target by 2029-30. February CPI surprised to the downside, with headline and core CPI falling to 2.8% and 3.5% respectively. The slowdown was partly due to a moderation in core goods prices, while the energy prices continued to experience negative growth. In contrast, services CPI remained steady at 5%, slightly below BoE's forecast. This data strengthens the case of a cut in May by the BoE, although risks to inflation and the terminal rate remain tilted to the upside.

Japan data

Japan’s industrial production grew at the fastest clip in nearly a year, as factory output increased by +2.5% y-o-y in February (vs. +2.0% expected) following a -1.1% decline the previous month. Retail sales growth slowed significantly to +1.4% y-o-y in February, falling short of the anticipated +2.5% and considerably lower than January's revised +4.4% increase.

Highlights

On rates

It was a volatile week for sovereign bonds, despite the 10yr US Treasury yield ending the week unchanged. The 10yr yield closed the week at 4.25%, after falling -11.6bps on Friday as the risk-off tone gained ground on renewed inflation, trade, and geopolitical concerns. Front-end yields saw similar declines with the 2yr yield falling -9bps on Friday and -4bps over the week to close at 3.91%. Fed expectations shifted in a dovish direction, with futures now pricing in 73bps worth of cuts for the year. Over in Europe, the 10yr bund yield fell -3.8bps to 2.72% on the back of lower-than-expected inflation data from France and Spain which led to optimism that the ECB would cut rates again at their next meeting in April. Elsewhere in Europe, UK 10-year gilt yield moved up to 4.80% in the wake of the Spring Statement that reviewed government finances, while the 10-year Swiss government bond yield fell to 0.65% as Europe’s economic outlook is clouded by US tariffs.

What to watch

• Monday: China March official PMIs; Japan February industrial production, retail sales, housing starts; Germany March CPI, February retail sales, import price index, Italy March CPI; US March MNI Chicago PMI, Dallas Fed manufacturing activity
• Tuesday: China March Caixin manufacturing PMI; Japan Q1 Tankan survey, February jobless rate, job-to-applicant ratio; Eurozone March CPI, February unemployment rate; Italy March manufacturing PMI, February unemployment rate; US March ISM index, Dallas Fed services activity, total vehicle sales, February JOLTS report, construction spending; Canada March manufacturing PMI
• Wednesday: Japan March monetary base; France February budget balance; US March ADP report, February factory orders
• Thursday: China March Caixin services PMI; Eurozone February PPI; Italy March services PMI; Switzerland March CPI; US March ISM services, February trade balance, initial jobless claims
• Friday: Japan February household spending; UK March new car registrations, construction PMI; Germany March construction PMI, February factory orders; France February industrial production; Italy February retail sales, US March jobs report; Canada March jobs report