Weekly Wrap: Shifting Growth Picture - Week Ending March 21

Market Movers

• Choppy tape. Low volumes and poor liquidity led to a lackluster week for US equities, despite a busy week of global central bank meetings and Nvidia’s GTC conference. Market participants are primarily focused on the April 2 deadline for the next phase of US tariff announcements. Expectations are near-term market performance will be influenced by potential impacts to corporate supply chains, input costs, and overall profitability. The S&P 500 ended the week -0.3% while the Nasdaq ended the week -1%. Gold held near-record highs at 3,012, +13.3% year-to-date, as demand continues for the safe-haven asset.

• Technical signals. US equities, while still down year-to-date, are seeing emerging tailwinds. Systematic trading strategies are at maximum short positions and indicators support a signal to buy. Pension funds are also modeled to buy $29 billion of equities during their quarterly rebalancing period, which is at a historically high level. Sentiment is also at low levels as many market participants expect tariffs to weigh on global economic growth. This week also brings the quarterly “triple witching” expiry of stock options, stock index futures, and stock index options contracts of $4.5 trillion, which could lead to increased volatility.

• German expansion. Germany's landmark fiscal expansion package has cleared its final legislative hurdle, removing government spending restrictions and paving the way for increased investment in infrastructure and defense. Economists anticipate a significant boost to economic growth in Germany and across Europe. Despite this positive catalyst, the DAX German stock index remained flat for the week, although its year-to-date performance remains strong at +14.6%.

Macro

• Extending wait and see. The Federal Reserve unanimously voted to hold rates steady at 4.25%-4.5%, maintaining its projection of two rate cuts this year. While acknowledging an upward revision to inflation forecasts, the Fed noted a corresponding downward revision to growth forecasts. Chairman Powell stressed the need for consistent data ("serial readings") and confirmed sustained progress toward the 2% inflation target, while emphasizing the importance of assessing the economic impact of President Trump's policies. Powell suggested that tariff-related inflation could be considered "transitory," prioritizing the stability of long-term inflation expectations. Throughout the week, market expectations for year-end rate cuts have moved from 58 basis points to 70 basis points.

• Hawk eyes. Following the Bank of England’s 8-1 vote to hold the benchmark rate at 4.5%, Governor Bailey urged caution amidst global economic turbulence, noting a "gradual fall in inflation." Despite a hawkish shift as some traditionally dovish members supported the hold, forecasts predict inflation will rise to 3.75% later this year. Officials are monitoring wage growth closely. Elsewhere, the Swiss National Bank cut its interest rate to 0.25%, the lowest since September 2022, but signaled further cuts are less probable given increased global economic and inflation uncertainty. This is a contrast with the hesitancy of other central banks.

• Patience is a virtue. The Bank of Japan maintained its benchmark interest rate at 0.5%, citing concerns over the potential impact of US tariff policies on the global economy. Despite robust domestic wage growth and a 4% inflation rate in January, Governor Ueda indicated the BOJ prefers to assess the situation after the next phase of US tariffs announcements on April 2 before considering further rate hikes. Despite the steep upward trajectory in bond yields, Ueda showed no immediate inclination to intervene in the market.

Micro

• US chips. Nvidia Chief Executive Officer Jensen Huang told the Financial Times that the latest chips designed by his company, and Nvidia-powered servers for data centers, can now be produced at US-based factories operated by Taiwan Semiconductor Manufacturing Co. and Foxconn Technology Group. Nvidia aims to spend several hundred billion dollars to procure US-made chips and electronics over the next four years. Semiconductor companies are -3.67% week-to-date.

• New battery. BYD Co. shares jumped to an intra-day record after unveiling a line-up of electric vehicles supported by ultra-fast charging. The automaker’s new battery and charging system can provide around 400 kilometers of range in five minutes and will start selling next month. BYD has committed to building 4,000 charging stations across China to serve the newly upgraded EVs. Chinese tech stocks are -3.97% week-to-date.

• Big deal. Alphabet Inc. agreed to acquire cloud security startup Wiz for $32 billion in cash. Wiz will join the Google Cloud business, providing new security products for customers and helping Google catch up with Microsoft Corp. and Amazon.com Inc. in the cloud-computing market. Cloud stocks are -1.45% week-to-date.

Checklist for the Next Two Weeks

• Major economic events in the US include: Initial Jobless Claims; GDP Annualized QoQ; Umich Sentiment; Conf Board Consumer Confidence; Durable Goods Orders; S&P Global Manufacturing PMI; MBA Mortgage Applications; New Home Sales

• Major economic events around the world include: Germany IFO Business Climate; UK CPI YoY; France Manufacturing PMI; India PMI Manufacturing; Mexico Bi-Weekly CPI