Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 24/03/25
Major central banks stood pat in March, with US equities interrupting a four-week losing streak
US equities ended marginally higher in the past week (S&P500: +0.5% wow & -4% ytd), with points of buying interest emerging, after four straight weeks of declines. Investors welcomed the Fed maintaining a baseline scenario of -50 bps cuts in the policy rate by end-2025 as well as a Quantitative Tightening slowdown, with the S&P500 up by +1.1% on Wednesday 19th.
Also, investors took a constructive view on US President Trump’s comments during the weekend for “flexibility” regarding the upcoming impositions of increased tariffs and possibly other trade barriers on goods imports from trading partners, with announcements expected on April 2nd.
Having said that, the range of possible outcomes in the next week is exceptionally wide, including (i) reciprocal tariffs e.g. equalizing the tariffs charged on US exports and imports from various partners; (ii) considering the value added tax (VAT) that is e.g. charged on US goods sold in Europe and (iii) non-tariff barriers.
European equity indices were little changed. In Germany, the legislature cleared the pathway towards the intended increase in public spending for infrastructure and defense, broadly as expected (DAX40: -0.4% wow & +15% ytd).
The German Ifo business climate indicator, due on Tuesday 25th, will provide the first check regarding the relationship between business confidence and the recent policy announcements. The index has been broadly flat in the past two years (85.2 in February).
On Monday 24th, major economic announcements were broadly in line with consensus expectations. In the event, the euro area business activity grew at its fastest pace in seven months in March, albeit remains subdued (50.4 in March from 50.2 in February). The composite PMI was supported by an easing in the manufacturing decline, despite slower growth in services (50.4 from 50.6).
Major central banks stood pat in the past week with the exception of SNB in view, inter alia, of elevated policy uncertainty, especially regarding trade developments, as well as pockets of inflation persistence. The Federal Reserve maintained the policy rate (FFR) at the range of 4.25% - 4.50%, as expected, albeit continuing to suggest a cumulative decline by 50 basis points for the FFR by end-2025.
Nevertheless, the Fed noted the elevated uncertainty regarding the path of the FFR, as US federal government policies are being substantially re-configurated in four areas (i.e. external trade, immigration, fiscal policy and regulation) each with significant potential economic effects.
Note that the Fed views the inflation risks significantly to the upside, despite the upward revision for Q4:2025 by +0.2 pps to +2.7% (PCE inflation). At the same time, growth projections for 2025 (Q4/Q4) were revised down by -0.4 pps to +1.7%.
The Fed decided to slow the monthly pace of decline of its holdings of US Treasury securities, to c. $5 bn from $25 bn currently. Since May 2022, the Fed has reduced its US Treasury securities portfolio by -$1.5 tn and the respective one of MBS by -$0.50 tn. The Fed’s balance sheet stands at $6.8 tn or 23% of GDP, versus 19% of GDP in 2019 (pre-Covid).
US equities ended marginally higher in the past week (S&P500: +0.5% wow & -4% ytd), with points of buying interest emerging, after four straight weeks of declines. Investors welcomed the Fed maintaining a baseline scenario of -50 bps cuts in the policy rate by end-2025 as well as a Quantitative Tightening slowdown, with the S&P500 up by +1.1% on Wednesday 19th.
Also, investors took a constructive view on US President Trump’s comments during the weekend for “flexibility” regarding the upcoming impositions of increased tariffs and possibly other trade barriers on goods imports from trading partners, with announcements expected on April 2nd.
Having said that, the range of possible outcomes in the next week is exceptionally wide, including (i) reciprocal tariffs e.g. equalizing the tariffs charged on US exports and imports from various partners; (ii) considering the value added tax (VAT) that is e.g. charged on US goods sold in Europe and (iii) non-tariff barriers.
European equity indices were little changed. In Germany, the legislature cleared the pathway towards the intended increase in public spending for infrastructure and defense, broadly as expected (DAX40: -0.4% wow & +15% ytd).
The German Ifo business climate indicator, due on Tuesday 25th, will provide the first check regarding the relationship between business confidence and the recent policy announcements. The index has been broadly flat in the past two years (85.2 in February).
On Monday 24th, major economic announcements were broadly in line with consensus expectations. In the event, the euro area business activity grew at its fastest pace in seven months in March, albeit remains subdued (50.4 in March from 50.2 in February). The composite PMI was supported by an easing in the manufacturing decline, despite slower growth in services (50.4 from 50.6).
Major central banks stood pat in the past week with the exception of SNB in view, inter alia, of elevated policy uncertainty, especially regarding trade developments, as well as pockets of inflation persistence. The Federal Reserve maintained the policy rate (FFR) at the range of 4.25% - 4.50%, as expected, albeit continuing to suggest a cumulative decline by 50 basis points for the FFR by end-2025.
Nevertheless, the Fed noted the elevated uncertainty regarding the path of the FFR, as US federal government policies are being substantially re-configurated in four areas (i.e. external trade, immigration, fiscal policy and regulation) each with significant potential economic effects.
Note that the Fed views the inflation risks significantly to the upside, despite the upward revision for Q4:2025 by +0.2 pps to +2.7% (PCE inflation). At the same time, growth projections for 2025 (Q4/Q4) were revised down by -0.4 pps to +1.7%.
The Fed decided to slow the monthly pace of decline of its holdings of US Treasury securities, to c. $5 bn from $25 bn currently. Since May 2022, the Fed has reduced its US Treasury securities portfolio by -$1.5 tn and the respective one of MBS by -$0.50 tn. The Fed’s balance sheet stands at $6.8 tn or 23% of GDP, versus 19% of GDP in 2019 (pre-Covid).
