The Davy Digest - 31st March 2025

Equities in the US fell towards the end of the week following a recent recovery, as the US announced a 25% tariff on all auto imports. Yields pushed higher on concerns that a looming trade war is a stagflationary shock, which will push prices higher, even as domestic consumption and growth come under pressure. The soft data continued to fall, as flash PMIs for both US services and manufacturing were lower than expected, and consumer confidence came in at 4-year lows. Eurozone flash PMIs moved marginally higher in March, while in the UK, the flash services PMI figure came in significantly higher than expected at 53.2. UK Chancellor Rachel Reeves announced spending cuts and 2025 economic growth halved to 1% in the Spring Statement. Elsewhere, inflation in Tokyo rose to 2.9%, supporting the Bank of Japan to hike interest rates at its next meeting.

Last week's highlights

	Flash PMIs (24/03) – Services 54.3 vs 50.8 expected, manufacturing 49.8 vs 51.7 expected.  Consumer Confidence (25/03) – Lowest in 4 years, impacted by tariff concerns.
	Eurozone Flash PMIs (24/03) – Composite PMI up to 50.4 in March from 50.2 in February. France and Spain inflation (28/03) - Inflation figures in France and Spain both came in below expectations.
	Flash PMIs (24/03) – Services 53.2 vs 50.9 expected, manufacturing PMI 44.6 vs 46.4 expected.  UK Inflation (25/03) – Cools more than expected (2.8% vs 2.9% forecast) Spring Statement (26/03) – Cuts spending forecast, 2025 growth halved to 1%.
	Tokyo Inflation (27/03) - Rose more than anticipated from the previous month, keeping the Bank of Japan on track for further interest rate hikes.

Looking ahead to this week, the Trump administration is planning to impose a fresh round of tariffs on Wednesday, 2nd April. Meanwhile, ISM PMI numbers are due out this week, along with nonfarm payrolls on Friday. The Eurozone will receive inflation data on Tuesday, a figure the ECB will look closely at ahead of its next interest rate decision on the 17th of April. The UK will see data released on S&P global manufacturing and services PMIs, as well as China’s Caixin manufacturing PMI figure coming out on Tuesday.

What's on the radar

	ISM Manufacturing PMI (01/04) Tariff Announcement (02/04) ISM Services PMI (03/04) Nonfarm Payrolls (04/04)
	Eurozone Inflation (HICP) (01/04) ECB Speakers – La Garde & Schnabel speak
	S&P Global Manufacturing PMI (01/04) S&P Global Services PMI (03/04)
	China Caixin Manufacturing PMI (01/04)

Chart of the moment

US trade deficit is bad, very bad, you know, you wouldn’t believe how bad it is

Source: St Louis Fed as of 25/03/2025. Trade balance is shown in USD, billions, seasonally adjusted. 

• President Trump intends to improve the US trade balance using tariffs and other measures. These efforts have created unprecedented near-term distortions to trade flows.
• Knowing that tariffs are imminent, companies are trying to import as many goods as they can at pre-tariff prices, causing a large deterioration in the US goods trade balance in the short term.