Key Events: ECB to Cut 25bp Despite Inflation Risks

Key Events

G10

In the US, the main data is:

1. Employment – Friday. We find out the impact of the administration’s large-scale deportations on labour supply, unemployment and wages. We could see a positive surprise on wage growth and a negative surprise on payrolls and unemployment.
2. PMIs – Monday, Wednesday. These are likely to convey the loss of confidence evident in the consumer surveys so could surprise on the downside. For their market impact, please see our event monitor.

In the Eurozone and UK, the main events will be:

1. Eurozone Preliminary February CPI – Monday. The preliminary national reads suggest a headline outturn of around +2.3%, in line with consensus. We will be watching services to see if February was stronger than usual.
2. Eurozone January Unemployment Rate – Tuesday. Consensus expects stability at 6.3%. While there have been job losses recently, scope exists for further tightening in subsequent months if Ukrainian refugees begin to return.

Elsewhere in G10:

1. Australia Q4 GDP – Wednesday. The economy is expected to have grown +0.5% through Q4 on continued strong public spending.
2. Switzerland February CPI – Wednesday. Inflation is expected to have grown +0.2% YoY through February, its slowest since March 2021. This should help solidify a March SNB 25bp cut.

EM

1. China Official PMI – Saturday. We expect the manufacturing PMI to disappoint at 49.9. High-frequency industry capital utilization data suggests industry production still to normalize from LNY holidays. Container-throughput data indicates a 20% decline in export volume from January. Price components could improve on rising commodity prices.
2. China NPC – Tuesday -Wednesday. Consensus expects key targets for 2025 to be a 5% growth rate, 2% inflation, and 4% deficit. The market expects RMB 1.5-2 tn more borrowing that last year. We focus on potential commitment to special-purpose local government bonds for the purchase of housing inventories and measures to improve income.
3. South Africa GDP – Tuesday. Likely upward revisions to the -0.3% QoQ agriculture-driven contraction leave additional uncertainty for Q4. But with withdrawals from the two-pot pension system and higher real incomes, a solid rebound is expected.
4. Czechia CPI – Wednesday. Disinflation is set to continue with the earlier food price gains unlikely to be repeated. Moderate currency strength should also help.
5. South Korea CPI – Wednesday. With a very subdued growth environment contained price presses are set to persist despite the earlier won weakness.

Central Banks in Action

1. ECB policy decision, updated forecasts and presser – Thursday. Another 25bp cut is highly likely. It is likely too soon to see significant hawkishness, especially amid US tariff talk. But we could increasingly see this.
2. Fed Powell speech – Friday. Powell is likely to stress that the US economy remains strong, that the Fed is confident that inflation will return to the 2% target with current policy settings, that the Fed will resume cutting once disinflation restarts, and that the Fed stands ready to respond to economic weaknesses.
3. Turkey rate meeting – Thursday. Continued disinflation and ongoing real appreciation of the lira should ensure another 250bp rate cut from the CBRT.

Markets to Watch

• USD will remain in focus with markets awaiting the arrival of incoming ISM and jobs data. We closed our short position, looking to re-enter once we have greater clarity on tariffs alongside greater evidence of a positioning peak.
• Euro short-end rates: with the market now pricing cuts to 1.9% this year, ERZ5 is looking more attractive to short. Preliminary inflation and the policy decision could provide strong impetus on this front.

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