TCMB cuts rates again

The Turkish central bank cut its one-week repo rate by 250bps yesterday, as had been widely anticipated, taking the benchmark rate down to 42.50%, the lowest since December 2023. Slowing inflation (39.1% y/y in February, down from a recent peak of 75.5% in May last year) has given the TCMB room to ease off from the record high of 50.00% at which rates were held through much of 2024, with a cumulative 750bps of cuts so far and more anticipated. The bank’s statement drew attention to improving inflation expectations and anticipated that ‘increased coordination of fiscal policy will also contribute’ to the disinflation.

The ECB cut its policy rates by 25bps at its March 6 meeting, taking the deposit facility rate to 2.5%. In its statement accompanying the cut the ECB said that policy was “becoming meaningfully less restrictive” but also lowered their growth forecasts for 2025-27, noting “high trade policy uncertainty as well as broader policy uncertainty.” In her press conference following the decision, ECB president Christine Lagarde committed the bank to being agile and that if “data indicate that the most appropriate…stance is a cut, it will be a cut.” The ECB will need to navigate the impact of potential US tariffs on Eurozone goods as well as the prospect of a much stronger fiscal impulse from Germany on the Eurozone economy. Markets are still pricing in a strong chance of a cut at the next ECB meeting in April but are pricing in just two additional cuts by the end of 2025.

US President Donald Trump has signed a new executive order suspending tariffs on goods from Mexico and Canada that are covered by a pre-existing trade agreement that was signed during his first administration. The exemption will last for a month and cover all goods listed under the USMCA from the tariffs imposed only earlier this week. Canada has also delayed the second round of the retaliatory tariffs it imposed on the US.

Christopher Waller, a Fed governor, said he still saw the chance of two or three rate cuts this year though ruled out a move at the March FOMC. Waller also was more sanguine about the effect tariffs would have on inflation and that if the “labor market, everything, seems to be holding, then you can just keep an eye on inflation.”

Initial jobless claims in the US for the week ending March 1 printed better than expected at 221k, down from 242k a week earlier and less than market expectations. Continuing claims for the prior week, however, rose to 1,897k from 1,862k a week earlier. The February nonfarm payrolls report is due out later tonight and is expected to show job gains of 160k.

Exports from China rose by 2.3% y/y in January-February in US dollar terms, underperforming market expectations of a 5.9% rise. Imports dropped by 8%, much steeper than markets had been expecting and leaving the trade surplus of the first two months of the year at USD 170.5bn.

Morocco has named several companies for a USD 32bn hydrogen project in the country including Taqa and ACWA Power from the UAE and Saudi Arabia.

Today’s Economic Data and Events

• 11:00 GE factory orders m/m Jan: forecast -2.5%
• 14:00 EC GDP SA q/q Q4 (f): forecast 0.1%
• 17:30 US change in nonfarm payrolls Feb: forecast 160k
• 17:30 US unemployment rate Feb: forecast 4%
• 17:30 US average hourly earnings m/m Feb: forecast 0.3%

Fixed Income

• US Treasuries showed limited movement close-to-close overnight with the 10yr yield closing unchanged at 4.2784% while the 2yr yield limited its move to a 5bps drop. More of the action in government bond markets remained in Europe where bunds extended their sell-off with yields up 4bps at 2.83% while French yields added 5bps to 3.535%.
• Emerging market bonds closed weaker overnight while indexes across the GCC all settled lower.

FX

• The US dollar remained under selling pressure overnight with most of the decline stemming from a stronger Japanese yen. USDJPY pulled lower by 0.6% for a second day in a row, closing at 147.98. Sterling and the Euro both consolidated recent gains with limited downward moves, settling at 1.2882 and 10.785 respectively.
• The apparent backtrack on tariffs helped to support the Canadian dollar overnight which pulled USDCAD down 0.3% to 1.4296. AUDUSD closed near unchanged at 0.6333 while NZDUSD added 0.1% to 0.5735.

Equities

• Equity markets continued to be whipped back and forth by statements from the US with the Dow Jones lower by 1% overnight and the S&P 500 and NASDAQ printing larger losses of 1.8% and 2.6% respectively. In contrast European stocks remain on an upswing with the DAX in Germany rising by 1.5%. The FTSE 100 closed lower overnight by 0.8%.
• Local stocks had a softer session with the DFM lower by 0.7% and the ADX down by 0.2%. In Saudi Arabia the Tadawul closed for the week with a 0.7% decline.

Commodities

• Oil prices consolidated after several sessions of selling pressure with front month Brent futures at USD 69.46/b, down 0.2%, and WTI at USD 66.36/b, near unchanged on the day. The delay of wide-ranging tariffs from the US on its North American trading partners may have a limited positive sentiment effect on oil and commodities more generally.
• Gold ticked lower overnight while industrial metals were positive across the board.