US inflation expectations rise in March

The provisional print of the University of Michigan sentiment survey dropped further than expected in March, declining to a value of 57.9 from 64.7 in February. There were falls in both the current and expected conditions components of the index, with the latter dropping by almost 10 points. Consumers appear to be becoming increasingly concerned about the prospect of faster price growth, with one year-ahead inflation expectations rising to 4.9% (4.3% previously) and five to ten year-ahead inflation expectations jumping to 3.9% in March from 3.5% in February. The latest results also suggest rising concerns about the outlook for the labour market with two-thirds of respondents citing that they expect unemployment to rise over the next 12 months, while almost 40% expect the Fed to hike rates over the same period.

The UK economy shrank in January, with the monthly measure of GDP falling 0.1%. The outturn was lower than consensus expectations for a 0.1% m/m gain and followed a 0.4% m/m rise in GDP in December. Separately, UK industrial production declined sharply in January, falling 0.9% m/m.

The pace of annual price growth in Saudi Arabia remained unchanged at 2% in February. The housing and utilities component remained the primary driver of annual inflation, rising 7.1% y/y in February, driven by a 11.2% rise in villa rents. There were also rises in the food and beverages component (+1% y/y), on the back of increasing meat and poultry prices. On a monthly basis, prices rose 0.2%.

German Chancellor-elect, Friedrich Merz, has reportedly reached a deal with the Green party to unlock debt-funded spending on defense and infrastructure projects. The final vote on the spending package will take place this week.

Chinese industrial production rose 5.9% YTD yoy in February, better than the 5.3% gain that had been expected. There was also a better-than-expected print for Chinese retail sales, which grew 4% YTD yoy in February, beating consensus expectations of 3.8% growth. The Chinese government is set to announce measures intended to boost domestic consumption at a press conference today.

Today’s Economic Data and Events

• 16:30 US Retail sales, February. Forecast: 0.7% m/m

Fixed Income

• US treasury yields rose on Friday, as a rebound in US stock markets reduced safe-haven demand for government bond. Yields on the 2yr closed 6bps higher on the day to reach 4.017%, leaving yields 2bps higher on a week-on-week basis. The 10yr yield was 1bps higher w/w after seeing a 4bps rise during Friday’s session to end the day at 4.3121%.
• Moves in European bond yields were mixed on Friday. The 10yr Gilt yield fell 1.6bps to reach 4.664%, while the 10yr Bund saw a 2bps rise, on reports that the Chancellor-elect has secured a deal to increase government spending on defense and infrastructure projects.
• S&P Global upgraded Saudi Arabia’s credit rating to A+ from A.

FX

• The dollar spot index fell marginally on Friday, closing 0.1% lower against its basket of peers. EURUSD gained 0.25% to 1.0879 on reports of the German spending deal. GBPUSD fell 0.13% to 1.2935. USDJPY rose 0.56% to 148.64, after a retreat in demand for safe-haven currencies.
• Commodity currencies gained against the dollar at the end of the week. AUDUSD rose 0.62% to 0.6324, NZDUSD gained 0.88% to 0.5748 and USDCAD fell 0.5% to 1.4366.

Equities

• US equity markets rose on Friday, driven by news that Chuck Schumer – the Senate Democratic party leader – had decided not to oppose a Republican spending bill. The Dow Jones rose 1.65% on the day but remained just over 3% lower on a week-on-week basis. The S&P 500 gained 2.13% on Friday but ended the week 2.3% lower, while the NASDAQ gained 2.61% on the day to leave the index 2.4% lower over the course of the week.
• European indices gained on Friday, after reports of a German deal to increase spending. The Eurostoxx 50 gained 1.42%, the CAC 4 rose 1.13%, and the DAX increased by 1.86%. The FTSE 100 rose 1.05%.
• Locally, the DFM fell 0.85% while the ADX closed 0.1% higher.

Commodities

• Brent futures rose 1.0% to USD 70.58/b, while WTI gained 0.95% to USD 67.18/b. The rise in prices on the day appear to have been driven by fading hopes of an imminent ceasefire between Ukraine and Russia.