Asian stock markets fell on Tuesday morning following the sharp decline of major US stock indices on Monday as investors and traders are worried that tariffs and potential trade wars could have an impact on US economic growth. Japan’s Nikkei hit its lowest level since September 2024. Yesterday, Nasdaq recorded its largest single day percentage drop since 2022.
This week the US CPI inflation report and the Bank of Canada (BoC) interest rate decision will draw market’s attention. The US inflation data could have an impact on the Federal Reserve interest rate decision due on March 19th. The BoC’s policy on borrowing costs will be another topic of conversation as Canada faces new US tariffs that could influence the economy’s trajectory.
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US CPI Inflation February 2025 Report
On Wednesday, the Department of Labour Statistics will publish February’s US CPI inflation report. Economists suggest that CPI inflation could drop to 2.9% in February, on a year-to-year basis, slightly lower than January’s figure. Core CPI inflation is also expected to drop to 3.2% from 3.3%.
It should be noted that the Fed has set a 2% CPI inflation target, a significant factor that plays a role in its monetary policy decisions. Commenting on the Fed’s inflation target, Mohammed El Erian, the former Pimco CEO, said that the central bank’s fixation on the figure could be risky. In a Bloomberg article, El Erian noted: “the Fed may find itself overly constrained by its current inflation target and, inadvertently, risking collateral damage and unintended consequences.” El Erian supports the raise of inflation target to about 2.25% or 2.50%.
Bank Of Canada Interest Rate Decision
The Bank of Canada (BoC) is expected to announce its decision on interest rates on Wednesday afternoon. Market analysts suggest the BoC’s governing board could lower borrowing costs by 25 basis points. If the forecast is to be confirmed, it would be the seventh time in a row that the Canadian central bank cuts rates. Canada and the US, one of its most important trading partners, have been entangled in a tariff dispute that could affect trading conditions for both countries.
Economists at Canadian Imperial Bank of Commerce made special mention of potential trade war consequences saying: “There will be a one-off bump in inflation… But in the context of an economic slowdown, rising unemployment, and reduced household spending power, that’s much less likely to spark a sustained wage-price spiral. The [Bank of Canada’s] job is to keep an eye further out on the horizon than a month or two. It can’t reopen a shuttered factory with a few rate cuts, but it can support domestic demand as an offset.”
Analysts at the Royal Bank of Canada (RBC) think that a rate cut is uncertain. In their note to investors, released on March 7th, they wrote: “We expect the Bank of Canada interest rate decision on Wednesday will be a very close call as our base case forecast assumes it will forego a rate cut for the first time since April 2024, but U.S. trade risks could still easily tilt odds towards a seventh consecutive cut. Outside of tariff risks, backward looking domestic demand in Canada is showing enough signs of recovering early in 2025 for the BoC to pause their cutting cycle.”
Japan Revises Q4 2024 GDP Lower
A report by the Japanese Cabinet Office showed that the country’s GDP grew by 2.2% on an annualised basis during last year’s fourth quarter, quite lower than the 2.8% figure that was initially forecast.
The Bank of Japan (BoJ) will announce its interest rate decision on March 19th with some economists suggesting that a pause on hiking is possible. Another report released yesterday revealed that household spending increased by 0.8% on a yearly basis in January while analysts had expected a figure close to 3.6%.
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