Ahead of the game: 24 March 2025
The US 500 had a mixed week, while the Australia 200 ended a four-week losing streak, as markets now focus on key inflation data from the PCE and CPI releases.
US stock markets mixed as Australia 200 rebounds
United States (US) stock markets had a mixed week as tariff headlines subsided and investors re-evaluated economic risks and the Federal Reserve's (Fed) potential reaction to inflation and slowing growth.
Locally, the Australia 200 broke its four-week losing streak, aided by the lack of new tariff news and February's labour force data, which reinforced expectations of a Reserve Bank of Australia (RBA) interest rate cut in May following the release of fourth quarter (Q4) inflation figures.
The week that was: highlights
- The Federal Open Market Committee (FOMC) kept the Fed Funds rate unchanged at 4.25% - 4.50%
- In the US, headline retail sales for February were softer than expected, increasing by 0.2% versus 0.6% expected
- However, the all-important Retail Sale Control group, which feeds into gross domestic product (GDP), surged by 1% versus 0.4% expected
- Industrial Production (IP) rose 0.7% month-on-month (MoM) in February, marking the third consecutive monthly increase and exceeding market forecasts of 0.2%
- US housing starts unexpectedly surged 11.2% MoM in February, following an 11.5% decline in the previous month due to severe snowstorms and frigid temperatures
- Initial jobless claims increased by 2000 to 223,000 last week, slightly below the expected 224,000
- The Bank of England (BoE) kept rates on hold at 4.50%
- The Bank of Japan (BoJ) kept rates on hold at 0.50%
- In China (CN), new home prices fell 4.8% year-on-year (YoY) in February, marking its 20th consecutive month of decline
- Staying in China, IP, retail sales and fixed asset investment data for the January to February period were all stronger than expected
- The Australian economy lost 52,800 jobs in February, while the unemployment rate remained unchanged at 4.1%
- Crude oil gained 1.92% to $68.50
- Gold gained 1.97% this week to hit a fresh record high of $3057
- Bitcoin trades higher for the week at $84,210
- Wall Street's gauge of fear, the volatility index (VIX), fell to 19.79% from 21.78
Key dates for the week ahead
Australia & New Zealand
- Australia: RBA Jones Speech (Tuesday, 25 March at 10.10am AEDT)
- Australia: Monthly consumer price index (CPI) indicator (Wednesday, 26 March at 11.30am AEDT)
China & Japan
- Japan (JP): BOJ monetary policy meeting minutes (Tuesday, 25 March at 10.50am AEDT)
United States
- United States: Standard & Poor's (S&P) flash purchasing managers' index (PMI) (Tuesday, 25 March at 12.45am AEDT)
- United States: Conference Board (CB) consumer confidence (Wednesday, 26 March at 1.00am AEDT)
- United States: Durable goods orders (Wednesday, 26 March at 11.30pm AEDT)
- United States: Core personal consumption expenditures (PCE) price index (Friday, 28 March at 11.30pm AEDT)
- United States: Michigan consumer sentiment final (Saturday, 29 March at 1.00am AEDT)
Europe & United Kingdom
- Europe (EA): Hamburg Commercial Bank (HCOB) flash PMI (Monday, 24 March at 8.00pm AEDT)
- United Kingdom (UK): S&P PMI (Monday, 24 March at 8.30pm AEDT)
- United Kingdom: Inflation (Wednesday, 26 March at 6.00pm AEDT)
- United Kingdom: Retail sales (Friday, 28 March at 6.00pm AEDT)
Key events for the week ahead
-
JP
BoJ monetary policy meeting minutes
Date: Tuesday, 25 March at 10.50am AEDT
At its recent meeting, the BoJ maintained its short-term interest rate at 0.50%, following a 25 basis-point (bp) hike in January. The decision to hold rates steady was driven by concerns over rising global economic uncertainties, particularly the potential impact of US trade restrictions under President Donald Trump.
The upcoming meeting minutes will be closely watched to offer deeper insights into the BoJ Policy Board's discussions, shedding light on the economic assessments and policy considerations around their decision. US policy risks and the uncertain global growth outlook will likely take centre stage for now, potentially outweighing encouraging wage and price data that suggest Japan is making good progress towards sustainably achieving the BoJ's 2% inflation target.
Nevertheless, the trajectory for the BoJ continues to lean towards further rate hikes, diverging from other major central banks that are leaning toward policy easing. Market consensus expects the BoJ to raise rates by 25 bp in July before pausing for the rest of the year.
BoJ short-term interest rate chart
-
AU
Monthly CPI indicator
Date: Wednesday, 26 March at 11.30am AEDT
The monthly CPI indicator rose by 2.5% YoY in January, unchanged from the prior month but below expectations of 2.6%. The ex-volatile measure rose 2.9% in the 12 months to January compared to 2.7% in the 12 months to December. Annual trimmed mean inflation rose 2.8% in December, up slightly from 2.7% in December.
The cooler inflation numbers amid sluggish growth opened the door for the RBA to cut rates by 25 bp at its Board meeting in February. However, the RBA sounded cautious, noting that future rate cuts depended largely on the continuation of the disinflationary trend.
'The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the board acknowledges that progress has been made but is cautious about the outlook.'
The preliminary expectation for the February monthly CPI indicator is for headline inflation to rise to 2.6% YoY, which will be the highest since August.
Nonetheless, should the March quarter inflation numbers, set to be released on 30 April, confirm the ongoing disinflationary trend, we expect the RBA to deliver a follow-up 25 bp rate cut at its meeting in May.
AU all groups monthly CPI chart
-
UK
Inflation
Date: Wednesday, 26 March at 6.00pm AEDT
In January 2025, the UK’s annual inflation rate surged to its highest since March 2024 at 3.0%, up from 2.5% in December and surpassing forecasts of 2.8%. The rise is primarily driven by higher costs in transport, food, non-alcoholic beverages, and non-energy industrial goods.
In response to persistent inflationary pressures, the BoE opted to maintain its interest rate at 4.5% at the March meeting. The basis for the rate inaction also stems from global economic uncertainties and heightened inflation risks linked to geopolitical tensions and trade tariffs.
Looking ahead, UK headline inflation is expected to ease slightly to 2.9%, while core inflation may moderate to 3.5% from 3.7%. Given the BoE’s cautious stance on inflation, policymakers will be looking for substantial inflation progress before considering rate cuts.
Market expectations currently forecast a 25 bp rate cut in June, followed by another 25 bp reduction in Q4. Any higher-than-expected inflation read next week could challenge current rate projections, potentially pushing back the timeline for the next rate cut.
UK inflation rate chart
-
US
Core PCE price index
Date: Friday, 28 March at 11.30pm AEDT
In January, headline PCE prices in the US increased by 2.5% YoY, marking a slowdown from 2.6% in December.
The core PCE price index, the Fed's preferred measure for underlying inflation, rose by 0.3%, in line with market expectations. This allowed the annual rate of core PCE to ease to 2.6% from 2.9% in December, still well above the Fed's 2% target.
Fed officials have repeatedly expressed, including at this week's FOMC meeting, that they are in no rush to cut rates again as they evaluate the impact of President Donald Trump's trade and immigration policies and wait to see more progress on inflation before considering further rate cuts.
The softer-than-expected February CPI and producer price index (PPI) reports do not challenge the Fed's cautious stance on rate cuts, particularly since some softer components of the CPI release, like airfares, are not part of the Fed's preferred inflation measure, the core PCE.
Furthermore, some components within the CPI and PPI report were hotter than the headline suggests, heightening the risk of a hotter core PCE inflation report when it is released in two weeks' time.
The expectation is for the headline personal consumption expenditures price index to rise to 2.7% YoY and for the core measure to rise to 2.8% YoY.
The US rates market is pricing in 20 bp of Fed rate cuts for June and a cumulative 67 bp of Fed rate cuts this year.
US headline PCE price index chart
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