Market Outlook for the Week 10th – 14th March | Forexlive

The week starts slowly with fewer scheduled economic events on Monday. Additionally, keep in mind the daylight saving time shift in the U.S. and Canada.

On Tuesday, Australia will release the Westpac consumer sentiment, Japan will report household spending y/y, and the U.S. will publish JOLTS job openings.

On Wednesday, the highlight will be the U.S. CPI data, while in Canada, the focus will be on the BoC monetary policy announcement. On Thursday, key U.S. data releases include the PPI m/m and unemployment claims.

Finally, on Friday, the U.K. will release GDP m/m, while in the U.S., the preliminary University of Michigan consumer sentiment and inflation expectations reports will be published.

In the U.S., the consensus for JOLTS job openings is 7.71M compared to the previous 7.60M.

In the last part of 2024 labor demand showed signs of stabilization despite a 500K drop in job openings in December, as job openings increased in Q4 overall.

Analysts at Wells Fargo note that job turnover remains historically low, as the post-pandemic job-switching trend has faded away. That said hiring and quit rates have flattened rather than declining further in recent months, indicating a possible inflection point.

No major decline is expected in this week’s data, but economic policy uncertainty could put pressure on hiring and job-seeker activity, as firms and workers assess the impact of recent policy shifts before making decisions.

In the U.S., the consensus for core CPI m/m is 0.3% compared to the previous 0.4%. The CPI m/m is expected at 0.3% vs. the prior 0.5%, while CPI y/y is projected at 2.9%, slightly lower than the previous 3.0%.

U.S. inflation ran hot in January, though not as strong as during the same period last year. A few categories registered price surges, including prescription drugs, used cars, motor vehicle insurance and recreation services. However, some of these have subsequently eased in February.

One of the main drivers for February CPI were food prices, with weekly USDA data indicating no relief in egg prices. However, energy costs, especially gasoline rose less than their seasonal average and helped curb inflationary pressures, according to Wells Fargo.

While some core goods prices are expected to ease, early inflationary effects from new tariffs on Chinese imports implemented at the start of February could offset these declines. Concerns over tariffs are already influencing pricing decisions, keeping consumer price inflation on a firm trajectory.

In terms of monetary policy, the Fed is still expected to deliver another rate cut in June, but for now inflation remains above its desired target.

At this week’s meeting, the BoC is expected to deliver a 25 bps rate cut, but there’s also a strong possibility that it will keep rates on hold.

Analysts from Scotiabank emphasize that, given the rising risks to the Canadian economy from U.S.-imposed tariffs, the BoC is likely to strike a cautiously dovish tone and could delay future rate cuts until the full scope of the tariffs impact becomes clearer.

On the political front, former BoC and BoE governor Mark Carney won the Liberal Party’s leadership race and will replace Justin Trudeau as Canada’s prime minister. There is a high possibility that Carney will call for early federal elections.

Arguments in favor of a rate cut pause include signs of early recovery in domestic demand in 2025, supported by stronger-than-expected Q4 GDP growth. While employment data indicates some weakness in trade-sensitive sectors, the unemployment rate remains below late-2024 levels, suggesting a narrowing output gap—a key driver of future inflation in the BoC’s policy framework. Inflation remains close to the 2% target, though this has been partially influenced by the federal sales tax holiday and would otherwise be higher.

The recently announced 25% U.S. tariffs on Canada and Mexico are already being rolled back, with USMCA-compliant trade exempted. While only 38% of Canadian exports utilized USMCA last year, this will likely increase and it should be possible to reach over 90% relatively quickly, RBC estimates. However, new U.S. tariffs on steel and aluminum are expected over the coming week, with broader reciprocal tariffs likely in April. The ongoing uncertainty surrounding U.S. trade policy remains high, posing challenges for Canadian business investment.

RBC analysts argue that the BoC must balance the need to support the economy with the risk of adding to inflationary pressures. With the Overnight Rate at 3%, near the top of the neutral range (2.25%-3.25%), further rate cuts could stimulate the economy. However, Governor Macklem has emphasized that monetary policy alone cannot counteract tariff shocks, and fiscal policy may provide more targeted support.

In conclusion, the BoC’s decision remains uncertain. Trade risks could weigh on the economic outlook, but strong fundamentals may justify keeping rates steady for now.