Curious about what next week will bring to global and domestic financial markets? Aside from important data flow, US President Donald Trump's new decisions are likely to feed into the ongoing volatility in markets.
Setting the stage for next week
GLOBAL MARKETS
Trade war is expanding... China announced on Saturday that it will impose retaliatory tariffs on some Canadian agricultural and food products, following Canada’s October tariffs on Chinese-made electric vehicles, steel and aluminum products. The new tariffs will come into effect on March 20, according to the Customs Tariff Commission. Canadian imports of rapeseed oil, feed and pea products will be subject to an additional 100% tariff, while pork and aquatic products will be subject to an additional 25% tax. Note that Canada on October imposed a 100% additional tariff on all Chinese-made electric vehicles and a 25% tariff on steel and aluminum imports.
More ECB members are mentioning pause in cuts... Following the ECB Governor Lagarde's statement that monetary policy is "meaningfully less restrictive" rhetoric, more ECB members are mentioning pause. ECB Board Member Isabel Schnabel stated that the risk of inflation remaining above 2% for longer than expected was higher than the risk of it falling permanently below 2%, signaling a vote of no cut in the next ECB meeting to be held in April 17th.
Comeback of Euro… Euro has gained some 3.5% against USD in the week of March 7th thanks to both ECB’s signal of a pause in rates but mostly due to Germany’s infrastructure budget plan of €500bn over the next 10 years which will spur growth and support the region’s growth. It would be too early to conclude that the Euro has gained its former value above 1.05 permanently as neither current state of growth, nor interest differential with the US support the value.
LOCAL MARKETS
No it won't Mr. Bolat... Minister of Trade Ömer Bolat stated that the decline in inflation will accelerate more in the summer and we will see balanced growth with both the decline in inflation and the decline in financial costs. However, the speed of decline in inflation is unlikely to accelerate in summer months as both base effect will disappear and lagged impact of rate cuts will feed into demand conditions. Inflation in Turkiye which ended the year at 44.4% will come down to little above 30% by the end of first half with an impressive performance but dragging it down from thereafter will be extremely hard and not acceleration but a visible deceleration will be in the making in the speed of inflation decline.
What to watch in the week ahead
Main market mover of the week is US inflation... The most important agenda for global markets this week will be the US CPI inflation to be announced on Wednesday at 15:30 Turkey time. Market expectations are for monthly inflation to decline from 0.5% to 0.3%, and y/y to decline from 3.0% to 2.9%. Core inflation is expected to decline from 0.4% to 0.3% on a monthly basis, and annual inflation to decline from 3.3% to 3.2%. While the high volatility led by uncertainty in the markets will mostly lead negative price movements, where asset prices will be quite sensitive to inflation data. While indicators regarding the performance of the US economy mostly indicate that the economy is vibrant, reflection of this in inflation may lead further volatility. An inflation rate above expectations may be perceived negatively and contribute to negative pricing, as it will weaken expectations that the US economy will weaken and the FED may make more than one interest rate cuts. On the other hand, lower than expected inflation may increase concerns about the US economy and again trigger downward pressure on asset pricing.
Main releases in Turkiye are industrial production, retail sales and balance of payments... There is no expectation regarding January industrial production, which will be announced at 10:00 on Monday, but it will be important whether industrial production, which grew by 7.0% in December y/y, carries the momentum it gained in the last quarter of 2024 to this year. The continuation of growth in industrial production will indicate that domestic demand is still lively in an environment where export performance is weak. There is no expectation regarding retail sales, which will be announced at 10:00 on Tuesday, but in terms of inflation outlook, it will be closely monitored whether retail sales growth increases at double-digit rates in the previous 5 months continues in January as well. The expectation regarding the balance of payments, which will be announced at 10:00 on Wednesday, is that the current balance will generate USD3.2bn deficit in January. A realization parallel to expectations will lead the total 12-month rolling current account deficit to increase from USD10bn to USD10.9bn. The fact that the 12-month rolling current account deficit, which came down as low as USD6.9bn in October, has started to increase thereafter due to the revival of demand triggering imports. The continued increase in imports despite the weak performance of exports in the coming period will question the permanence of the decrease in the current account deficit.