The US February CPI and PPI came in lower than expected, but core PCE rose more than anticipated. Consumer inflation expectations surged to the highest level since 1993, as the market worries upcoming tariffs will significantly push up prices. At the March FOMC meeting, the Fed kept rates steady but signalled two rate cuts by year-end. They also decided to slow the pace of balance sheet reduction. Rising inflation expectations and downgraded growth forecasts reflect stagflation risks. However, Powell believes tariff-driven inflation is transitory, and the Fed does not need to urgently adjust policy despite slightly elevated recession risks. The tariff-induced risk aversion has lifted gold above $3,000/oz, with gold miners rallying sharply. Copper futures also hit records as traders rushed metal into the US ahead of tariffs, though prices later plunged as risk appetite soured.
Domestically, economic activity in the first two months of 2025 continued exceeding expectations, with GDP growth tracking around 5.4%. On going policy support with bond issuance and infrastructure demand recovering better y0y. The fiscal deficit is also set to reach a new high in 2025, second only to 2020. In April, Trump’s tariffs exceeded market forecasts, spurring global recession fears. Stocks and commodities plummeted, and gold faced liquidation due to liquidity concerns. However, the long-term bullish case for gold remains intact, and the pullback is likely to precede new highs