Tariff war and govt shutdown leaves bearish bias to global sentiment

EU mid-market update: US CPI keeps Fed easing cycle on track but tariff war and govt shutdown leaves bearish bias to global sentiment; US envoy in Moscow; Canada and US to discuss USMCA trade agreement.

Notes/observations

- European indices opened mixed-to-soft amid Trump’s tariff threats and US shutdown risks, later turning greener as session wore on. Auto/Industrials lag, while defensives (Telecoms, Healthcare) and UK’s FTSE outperform. Italy’s MIB pares gains despite Generali’s record profit.

- US futures edge lower following a tech-led rebound which fizzled in Asia. Bearish momentum building ahead of US shutdown deadline (GOP lacks votes, but last-minute fix likely).

- Driving macro sentiment is Trump vowing retaliation against EU/Canada counter tariffs (“whatever they charge us, we charge them”), stoking fears of 2018-style escalation. Euro dipped to $1.087, CHF weakens. Analysts warn prolonged disputes risk inflation stickiness and growth downgrades (Bank of France slashes 2025 outlook). Yesterday’s soft US CPI keeps June cut (85% priced) on track, but markets eye 3 cuts by 2025 vs. analyst consensus of 2. ING notes shutdown risks could dent USD if economic data darkens.

- US and Canadian officials will meet later today to discuss updating the USMCA trade agreement ahead of the April 2 tariff deadline,

- Bitcoin stabilizes over $80K despite safe haven flows which are supporting gold and US dollar.

- With the federal government set to shut down at midnight on Friday, Senate Democrats are blocking the House GOP’s short-term funding bill, demanding a vote on their own 28-day continuing resolution (CR), which seem unlikely to pass. Senate Majority Leader John Thune has scheduled a cloture vote for Friday, but without Democratic support, the House CR may not clear the Senate, potentially leading to a shutdown. While some Democrats see this as an opportunity to pressure Republicans into broader budget negotiations, others worry the shutdown could backfire, forcing them to accept the House GOP’s terms later.

- Google's new open-source Gemma 3 model, unveiled yesterday, reportedly achieves 98% of DeepSeek's accuracy using just one GPU, highlighting rapid efficiency gains in AI training. This breakthrough raises questions about whether planned power grid expansions are still necessary, given the trend toward lower energy consumption per model. Additionally, Gemma 3’s multimodal capabilities suggest significant architectural optimizations, potentially reshaping expectations for energy-efficient AI development.

- Asia closed lower with Hang Seng underperforming -0.6%. EU indices -0.1% to +0.6%. US futures -0.1% to -0.4%. Gold +0.5%, DXY +0.1%; Commodity: Brent -0.4%, WTI -0.5%; Crypto: BTC +0.8%, ETH -0.5%.

Asia

- Australia Mar Consumer Inflation Expectation: 3.6% v 4.6% prior [lowest since 2021].

- BOJ Gov Ueda testified that food prices were currently helping to push up inflation. Reiterated view that price trend was still 'somewhat' below 2.0% target. Expected underlying inflation to gradually accelerate as economy continued to recover..

Global conflict/tensions

- Russia military stated it had liberated over 1,100 sq km of territory in Kursk; Putin to visit the Kursk region for the first time since the Ukraine incursion(**Note: Putin said to be hesitant to agree to President Trump’s proposed ceasefire because of his force’s significant gains on the battlefield, including around Kursk).

- Poland President Duda said to have urged the US to move nuclear warheads to 'Polish territory'.

Europe

- Bank of France (BdF) cut its 2025 GDP growth forecast from 0.9% to 0.7%; cuts inflation forecast from 1.6% to 1.3%; Economy faced uncertainty over tariffs.

- UK Feb RICS House Price Balance: 11% v 20%e [lowest since Sept 2024].

Americas

- Feb Federal Budget Balance: -$307.0B v -$308.0Be.

- Senate Democrats said to decline to back bill to avert US government shutdown. unwilling to provide the support needed for the bill to pass the Senate before the current funding expires on Friday night (**NOTE: On Mar 11th US House passed stopgap funding bill (CR); Bill transferred to Senate where its fate is uncertain).

- US Senator Schumer stated that the GOP did not have enough votes for closure on stopgap; Hoped GOP would allow a vote on 30-day stopgap which would avoid a govt shutdown.

- Dir of White House National Economic Council Hassett stated that expected US GDP growth at 2.0-2.5%in Q1.

- Canada PM designate Carney to be sworn in on Friday, Mar 14th.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.28% at 542.78, FTSE +0.33% at 8,569.25, DAX -0.13% at 22,637.50, CAC-40 +0.06% at 7,993.42, IBEX-35 +0.59% at 12,859.00, FTSE MIB -0.26% at 38,207.00, SMI +0.10% at 12,893.70, S&P 500 Futures -0.26%].

Market focal points/key themes: European indices open lower across the board but later recovered to trade mixed after the initial hours of trading; focus on trade commentary; among sectors managing gains are telecom and health care; sectors inclined to the downside include industirals and technology; Euronext acquires Admincontrol; focus on Euroarea industrial production figures to be released later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] -3.5% (results; expects weaker Q1), Deliveroo [ROO.UK] -9.0% (earnings).

- Financials: Hannover Re [HNR1.DE] +1.5% (results), Deutsche Bank [DBK.DE] -1.0% (affirmed outlook), Generali [G.IT] -0.5% (FY results) - Healthcare: DocMorris [DOCM.CH] -19.0% (final FY24 results).

- Industrials: Schneider Electric [SU.FR] +2.5% (Goldman raised to buy), Bilfinger [GBF.DE] -4.5% (HSBC cuts to hold), Gerresheimer [GXI.DE] -1.0% (Warburg and KKR said to pair up in advanced discussions to bid for Gerresheimer after other suitors drop out).

Speakers

- ECB's Nagel (Germany) stated that Europe was right to respond to US tariffs; trade war could push Germany back into recession.

- ECB's Kazaks (Latvia) reiterated rates would be decided on meeting-by-meeting basis due to uncertainty. Could not say everything was done on inflation.

- German Green party official Hasselmann stated that had no progress on talks on debt plans with conservatives.

- IFW economic institute raised its Germany's 2026 GDP growth forecast from 0.9% to 1.5%.

- Russia Govt Spokesperson Peskov confirmed US negotiation team were travelling to Russia. Putin might have an 'international' phone call later today.

- Turkey Central Bank (CBRT) Gov Karahan stated that it had no target on exchange rates. GDP data showing demand stronger than expected but would not let demand hurt the disinflation process.

- China PBOC reiterated stance of 'moderately loose' monetary policy; to create sound monetary conditions fir the economy. Reiterated stance to cut interest rates and RRR at the appropriate time. Vowed to prevent and resolve financial risks in key areas. To strengthen financial services for key areas. Reiterated to maintain stability of CNY (yuan) exchange rate.

- IEA Monthly Oil Report (OMR) cut the 2025 global oil demand growth from 1.1Mbpd to 1.03M bpd (demand seen at 103.9M vs. 104.0M prior). It maintained 2025 global oil supply growth at 1.6M bpd (supply seen at 104.5M vs. 104.5M prior). IEA noted that was too early to estimate impact of tariffs on oil demand.

Currencies/fixed income

- USD was steady during a quiet EU session but focus was on the risk of a potential US govt shutdown. Markets also continued to watch developments on the trade front. President Trump said he would respond to the EU's plans for counter tariffs against a 25% U.S. levy on all steel and aluminum imports.

- EUR/USD holding below the 1.09 level during the morning. Market focus will be on the German Bundestag's debate beginning on the debt brake reform. A Green party official noted there was no progress on talks on debt plans with conservatives.

- USD/JPY staying below the 148 level. BOJ Gov Ueda provided no fresh insights during a parliamentary testimony.

- 10-year German Bund yield at 2.89% and 10-year Gilt yield at 4.6872%. 10-year Treasury yield at 4.31%.

Economic data

- (SE) Sweden Feb Final CPI M/M: 0.6% v 0.6% prelim; Y/Y: 1.3% v 1.3% prelim.

- (SE) Sweden Feb Final CPIF M/M: 0.9% v 0.9% prelim; Y/Y: 2.9% v 2.9% prelim.

- (SE) Sweden Feb Final CPIF (ex-energy) M/M: 0.9% v 0.9% prelim; Y/Y: 3.0% v 3.0% prelim; CPI Level: # v 416.57 prior.

- (RO) Romania Feb CPI M/M: 0.9% v 0.5%e; Y/Y:5.0 % v 4.7%e.

- (CH) Swiss Feb Producer & Import Prices M/M: 0.3% v 0.1% prior; Y/Y: -0.1% v -0.3% prior.

- (CZ) Czech Jan Retail Sales (ex-auto) Y/Y: 2.8% v 4.2%e.

- (HK) Hong Kong Q4 Industrial Production Y/Y: +1.0% v -0.1% prior.

- (HK) Hong Kong Q4 PPI Y/Y: 4.2% v 3.2% prior.

- (IT) Italy Q4 Unemployment Rate: 6.1% v 6.2%e.

- (ZA) South Africa Jan Total Mining Production M/M: % v -3.9% prior; Y/Y: % v -2.4% prior; Gold Production Y/Y: % v -8.4% prior; Platinum Production Y/Y: % v -7.1% prior.

Fixed income issuance

- (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 2038 and 2054 GGB bonds via syndicate.

Looking ahead

- 06:00 (EU) Euro Zone Jan Industrial Production M/M: +0.6%e v -1.1% prior; Y/Y: -0.8%e v -2.0% prior.

- 06:00 (EU) ECB’s Vujcic (Croatia).

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (IT) Italy Debt Agency (Tesoro) to sell €6.75-8.25B in 3-year, 7-year BTP bonds.

- 06:00 (VN) Vietnam Finance Ministry announcement on upcoming bond issuance (held on Wed).

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:40 (UK) BOE 7-day short-term repo operation (STR).

- 07:00 (ZA) South Africa Jan Manufacturing Production M/M: +0.9%e v -2.4% prior; Y/Y: -1.9%e v -1.2% prior.

- 07:00 (IE) Ireland Feb CPI M/M: No est v -0.8% prior; Y/Y: No est v 1.9% prior.

- 07:00 (IE) Ireland Feb CPI EU Harmonized M/M: No est v -0.7% prior; Y/Y (final): No est v 1.3% prelim.

- 07:00 (IL) Israel Feb Trade Balance: No est v -$3.1B prior.

- 07:00 (IL) Israel Q4 Current Account Balance: $7.5Be v $5.5B prior.

- 07:00 (CZ) Czech Republic to sell CZK5.0B in 9-month Bills.

- 07:00 (RO) Romania to sell RON400M in 7.20% Oct 2033 bonds.

- 07:30 (BR) Brazil Jan Total Outstanding Loans (BRL): No est v 6.427T prior; M/M: No est v 1.4% prior; Personal Loan Default Rate: No est v 5.3% prior.

- 08:00 (BR) Brazil Jan IBGE Services Volume M/M: -0.1%e v -0.5% prior; Y/Y: 1.4%e v 2.4% prior.

- 08:00 (BR) Brazil CONAB Report.

- 08:00 (MX) Mexico Jan Industrial Production M/M: +0.1%e v -1.4% prior; Y/Y: -1.7%e v -2.7% prior; Manufacturing Production Y/Y: +0.5%e v -0.6% prior.

- 08:00 (IE) ECB's Makhlouf (Ireland).

- 08:30 (US) Feb PPI Final Demand M/M: 0.3%e v 0.4% prior; Y/Y: 3.3%e v 3.5% prior.

- 08:30 (US) Feb PPI (Ex Food and Energy) M/M: 0.3%e v 0.3% prior; Y/Y: 3.5%e v 3.6% prior.

- 08:30 (US) Feb PPI (Ex Food, Energy, Trade) M/M: 0.3%e v 0.3% prior; Y/Y: 3.4%e v 3.4% prior.

- 08:30 (US) Initial Jobless Claims: 225Ket v 221K prior; Continuing Claims: 1.89Me v 1.897M prior.

- 08:30 (CA) Canada Jan Building Permits M/M: -5.0%e v +11.0% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Q4 Financial Account Household Change in Net Worth: No est v $4.766T prior.

- 12:00 (AT) ECB’s Holtzmann (Austria).

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

- 13:30 (FR) ECB’s Villeroy (France).

- 17:00 (KR) South Korea Feb Import Price Index M/M: No est v 2.3% prior; Y/Y: No est v 6.6% prior.

- 17:00 (KR) South Korea Feb Export Price Index M/M: No est v 1.2% prior; Y/Y: No est v 8.5% prior.

- 17:30 (NZ) New Zealand Feb Manufacturing PMI: No est v 51.4 prior.

- 17:45 (NZ) New Zealand Feb Food Prices M/M: No est v 1.9% prior.

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.75%.

- 22:00 (KR) South Korea to sell KRW600B in 50-year Bonds.

- 23:30 (JP) Japan to sell 3-Month Bills.