2025-03-10
Key Focus This Week: U.S. CPI & OPEC, EIA and IEA Crude Oil Forecast
Last week, the U.S. manufacturing PMI came in weaker than expected, and employment data also showed signs of cooling. However, Federal Reserve Chair Jerome Powell reassured markets by stating that the economy remains resilient and that the Fed would maintain a cautious approach toward rate cuts. This helped ease concerns over economic slowdown, but the S&P 500 still declined 3.1% for the week, closing at 5,770.19.
In the bond market, Powell’s remarks about maintaining the Fed’s current stance on rate cuts led to a modest 10 bps increase in the 10-year U.S. Treasury yield, reaching 4.3%. Meanwhile, the U.S. dollar index weakened significantly to around 103.9, as expectations for the European Central Bank (ECB) nearing the end of its rate-cutting cycle and Germany’s decision to expand fiscal spending by €500 billion pressured the greenback.。
Key Economic Data Last Week
U.S. ISM PMI: The U.S. manufacturing PMI came in at 50.3 in February (prior: 50.9), marking the second consecutive month of expansion. However, new orders plummeted to 48.6 (prior: 55.1), while production and employment edged lower to 50.7 (prior: 52.5) and 47.6 (prior: 50.3), respectively. This reflects a more cautious business sentiment regarding potential tariff policies, leading to further weakening in new orders and hiring activity.
Inventory levels climbed further to 49.9 (prior: 45.9), and supplier delivery times increased to 54.5 (prior: 50.9), suggesting that many firms have ramped up preemptive stockpiling to mitigate potential tariff costs while negotiating cost-sharing arrangements with customers.
In the services sector, February’s PMI stood at 53.5 (prior: 52.8), marking the eighth consecutive month of expansion. Business activity remained stable at 54.4 (prior: 54.5), while new orders continued to expand at 52.2 (prior: 51.3). However, part of this growth may be attributed to firms accelerating orders in anticipation of tariff-related disruptions, as evidenced by longer supplier delivery times and similar sentiment in corporate surveys.
Overall, the impact of tariff policies on both manufacturing and services sectors is becoming increasingly evident. Firms are proactively stockpiling inventory, and prices are rising further. The manufacturing sector, which is more exposed to trade uncertainties, has taken a notably more conservative stance. If tariff uncertainties persist, customer demand and investment could be further restrained, potentially pushing the manufacturing sector back into contraction.
Read more at Datatrack
ECB Rate Decision: The ECB unanimously voted (with one abstention) to cut the deposit facility rate, main refinancing rate, and marginal lending rate by 25 bps each to 2.50%, 2.65%, and 2.90%, respectively—marking the sixth consecutive rate cut since June last year.
In its statement, the ECB projected that inflation would gradually return to its 2% target range as wage growth slows. However, due to stronger-than-expected energy prices, the ECB revised its 2025 inflation forecast upward to 2.3% (prior: 2.1%), while maintaining its 2026 forecast at 1.9% and revising 2027’s estimate slightly lower to 2.0% (prior: 2.1%).
On the economic growth front, the ECB lowered its 2025 and 2026 growth projections to 0.9% (prior: 1.1%) and 1.2% (prior: 1.4%), respectively, while keeping 2027’s growth forecast unchanged at 1.3%. This reflects concerns over uncertainties surrounding U.S. trade policies, geopolitical tensions in Ukraine and the Middle East, and their potential impact on the eurozone economy.
With financing demand rising due to prior rate cuts, the ECB noted that monetary policy was becoming less restrictive. Additionally, given increasing economic uncertainty, the ECB stated that it would adopt a gradual, data-dependent approach to policy adjustments. This reinforced market expectations that the rate-cutting cycle is nearing its end, with only 50 bps of additional cuts expected this year.
Read more at Datatrack
U.S Employment Situation: The U.S. nonfarm payroll increase 151,000 in February (prior: 125,000), slightly below market expectations of 160,000. Job gains were led by education & healthcare (+63,100), financial services (+21,000), and transportation & warehousing (+17,800).
However, retail employment declined by 11,000 after adding 29,500 jobs the prior month, and average weekly earnings grew by just 0.3% month-over-month, signaling a slowdown in consumer spending. Meanwhile, government hiring increased by only 11,000 (prior: 44,000), partially due to federal workforce cuts under the Trump administration.
Household survey data showed that employment declined sharply by 588,000, while the number of unemployed individuals increased by 203,000, pushing the unemployment rate up to 4.1% (prior: 4.0%). Labor force participation also edged lower to 62.4% (prior: 62.6%). Additionally, the number of workers forced into part-time employment for economic reasons surged by 460,000 to 4.94 million—the highest level since May 2021—highlighting further signs of labor market cooling.
Despite continued job growth and weather-related disruptions still affecting 449,000 workers in February, the overall labor market is showing increasing signs of deceleration, with rising unemployment, slowing wage growth, and an increase in involuntary part-time employment.
Read more at Datatrack
Key Economic Data This Week
U.S. CPI: January’s CPI and core CPI exceeded market expectations due to higher fuel demand amid winter storms, soaring egg prices caused by avian flu, and wildfire-related disruptions that drove up used car and insurance costs. As these temporary factors subside, the Atlanta Fed forecasts February’s headline and core CPI to ease to 2.83% (prior: 3.0%) and 3.16% (prior: 3.26%), respectively.
Read more at Datatrack
Bank of Canada Rate Decision: The Bank of Canada (BoC) has cut rates six consecutive times since June last year. While CPI has returned to the 2% target range, the potential economic impact of high tariffs introduces significant uncertainty. As a result, markets expect the BoC to maintain an accommodative stance and cut rates by 25 bps to 2.75% at this meeting.
Read more at Datatrack
OPEC, IEA and EIA Energy Reports: All three major energy agencies raised their 2025 demand growth forecasts in February, citing recovering demand in China and other Asian economies. However, with OPEC+ set to lift production cuts in April and non-OPEC supply continuing to expand, global oil markets are expected to remain oversupplied in the medium term, keeping downward pressure on oil prices.