Global equity markets drifted lower on light volumes and gold climbed to record highs against mixed dollar performance Thursday. Proposed US vehicle and component tariffs weighed on the auto sector as the possibility of Canadian and EU responses prompted warnings from the White House. European allies and other NATO members discussed next steps in their support for Ukraine with agreement on the need for continued sanctions against Russia. In the US, where HHS layoffs and reorganization were announced, the CBO warned of long-term consequences to weak population growth and burgeoning government spending and borrowing.
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Around the World
Russia-Ukraine:
Security talks in France brought together EU countries and other NATO allies in a "coalition of the willing" as leaders affirmed support for maintaining sanctions against Russia but were less committed to posting a "reassurance force" in Ukraine. (AP, Reuters)
President Zelensky warned that Russia had increased the frequency and scale of attacks in a lead-up to a potential Spring offensive targeting the Sumy and Kharkiv regions. (Reuters)
The US sought to extract further mining and natural resource rights in exchange for support extended to Ukraine, albeit without security guarantees. Passage in Ukraine's Parliament was not assured. (WSJ)
China:
Foreign Minister Wang Yi met with French counterpart Jean-Noel Barrot in Beijing with plans to hold three more high-level talks after "constructive" dialogue on Thursday. (Reuters)
French officials traveled to Greece as the EU sought to bolster a strategic minerals plan to lessen its reliance on China. (AP)
Reuters analysis showed that China's finance ministry accelerated 1Q debt issuance to a record in its bid to offer fiscal support. (Reuters)
Congressional Budget Office:
The CBO published "The Long-Term Budget Outlook: 2025 to 2055", which projected slower growth amid growing debt burdens based on current policy (i.e., excluding any developments under the new administration).
Middle East:
The US continued its build up at Naval Support Facility Diego Garcia in the Indian Ocean in proximity to Yemen and Iran. (WSJ)
Central Banks, Governments, & Data
Federal Reserve:
Boston Fed President Susan Collins expected tariff policies to drive inflation higher in the near-term but was unsure that such an impact would be lasting, upside risks notwithstanding. Echoing other Fed officials' hold-for-longer mantra, Collins added "I would, looking forward, expect that holding [rates] steady for a longer time is likely to be appropriate". She also supported "active patience", namely that the Fed should await further clarity on the ramifications of forthcoming policy before adjusting as needed. Collins noted that she was still "cautiously, realistically optimistic" about the resilient domestic economy. (Reuters)
Richmond Fed President Thomas Barkin spoke to the appropriateness of "moderately restrictive" monetary policy in the wake of the country's recent experience with high inflation and "zero visibility" driving economic uncertainty. He did not anticipate full tariff pass-through but drew attention to unknown effects on demand and labor needs. (Reuters)
Driving through Economic Fog
Banxico:
Mexico's central bank, Banxico, cut policy rates 50bp to 9.00% citing disinflation progress and trade-driven uncertainty. The central bank expected weak first quarter growth and left additional 50bp adjustments on the table at future meetings. (Reuters)
Banco Central do Brasil:
BCB officials presenting the latest Monetary Policy Report including economic policy director Diogo Guillen and President Gabriel Galipolo pointed to higher rates for longer in the face of "unanchored" inflation expectations. The central bank recently lifted policy rates 100bp, to 14.25%.
Norges Bank:
Higher than anticipated inflation and wage growth kept Norway's central bank on hold, as Norges Bank elected to keep rates at 4.50% after having previously floated the possibility of rate reductions.
European Central Bank:
ECB Executive Board Member Isabel Schnabel referred to a "misperception" of inflation and income dynamics weighing on spending.
Financial literacy and monetary policy transmission
Elections:
In Australia, Prime Minister Anthony Albanese called national elections to be held on May 3.
Economic Releases:
The third and final revision to 4Q GDP growth in the US was revised slightly higher, to 2.4%. The PCE deflator had climbed to 2.4% from 1.5% in 3Q, while the core measure had jumped to 2.6% from 2.2% the previous quarter.
The February Personal Consumption & Expenditure report will be released Friday, which will include the Fed's preferred measure of inflation.
Odds & Ends:
More expensive coffee incoming... (Reuters)