Economic and Market Overview
March 2025
Equities fell, the curve steepened and credit spreads widened over a month where tariffs continued to dominate headlines and market participants prepared for President Trump’s April 2 “Liberation Day” announcements.
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As markets increasingly focused on the impact of the Trump administration’s trade policies, the S&P 500 posted its worst month in over two years. Treasuries were volatile, yet range-bound. The yield curve ultimately finished steeper as the front end rallied, the 30-year sold off and the 10-year acted as the fulcrum of the seesaw. Credit spreads weakened again amidst the risk-off backdrop and in the face of heavy supply. With respect to the latter point, J.P. Morgan reported $193 billion in total investment grade issuance for the month, 15% over the average of the prior four March figures. The average OAS on the Bloomberg Long Credit Index closed the first quarter 21 bps wide of its post-election low. WTI futures fell early and rallied late as a steady stream of headlines poured in regarding tariffs, the potential for a ceasefire in Ukraine, and conflict in the Middle East. The dollar weakened against most developed country currencies for the third consecutive month.
Economic Data
Nonfarm payrolls grew at a 151,000 pace in February, falling just 9,000 short of forecasts, followed by a relatively unremarkable 2,000 net downward revision to the prior two months. The unemployment rate was a touch noisy, however, ticking up 0.1% to 4.1% even as the participation rate declined by 0.2%. Looking ahead, expectations are for numbers in the same ballpark with NFP growth of 140,000 and no change in the unemployment or participation rates when March data are released on April 4. Headline retail sales were much weaker than expected again, rising by just 0.2% in February after a downwardly-revised 1.2% decline in January, though the latter are likely distorted from wildfires and extreme cold in many parts of the country. For those in search of a silver lining, however, the ex auto and gas version of the index rose by a healthy 0.5%. The Conference Board and University of Michigan again reported large decreases in consumer sentiment with notable declines in their respective expectations components. Housing data rebounded in February as new home sales, housing starts and existing home sales all rose MoM beating expectations. In the manufacturing sector, hard data were generally strong while sentiment surveys trended lower. GDP grew at a 2.4% annualized rate in Q4 according to the third release, 0.1% over both the second release and consensus.
Inflation
Inflation data for February were mixed as headline and core CPI each rose by 0.2% MoM — both 0.1% under consensus. Both results were welcome after surprisingly sharp upticks the prior month. PPI releases were also softer-than-expected across the board. Core PCE figures, on the other hand, topped forecasts and accelerated MoM. The University of Michigan reported higher near-term inflation expectations from respondents, which was echoed by the Treasury market as breakevens rose at the front end. The 2-year level finished 9 bps higher at 3.28%, while the 10-year and 30-year rates were unchanged. The 5y/5y forward rate also held firm at 2.19%.
Federal Reserve
The FOMC announced no change to the policy rate on March 19. While the hold was widely expected, the updated Summary of Economic Projections reflected a stagflationary bias with the 2025 median projections showing 0.4% lower growth and 0.3% higher inflation from previous projections. Chair Powell said at the press conference that “a good part” of the higher inflation forecast was caused by tariffs, but that it would be very difficult to parse in the realized inflation data. Despite the projections for higher inflation, the SEP still indicated two cuts for 2025, though there was an upward drift around that median. Powell reiterated multiple times that the Fed remains in wait-and-see mode while referencing the “remarkably high uncertainty” in the broader market. Later in the month, Chicago Fed president Goolsbee noted that any sign of inflation expectations de-anchoring would be a “major red flag” and require action by the Fed.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data are as of the dates noted.
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