This week's economic calendar features key inflation data from major economies, with the US PCE Price Index and Eurozone HICP in focus. Markets are watching Trump's escalating trade tensions with China and the aftermath of Merz's victory in German elections. Gold trades near all-time highs as Fed rate cut expectations shift to July, while global trade uncertainties persist.

Key Events and Data to Watch This Week

Monday

• 10:00 - Eurozone Harmonized Index of Consumer Prices (Jan)

Tuesday

• 07:00 - Germany Gross Domestic Product (Q4)

• 14:00 - US Housing Price Index (Dec)

• 15:00 - US Consumer Confidence (Feb)

Wednesday

• 00:30 - Australia Monthly Consumer Price Index (Jan)

• 07:00 - US New Home Sales Change (Jan)

Thursday

• 10:00 - Eurozone Economic Sentiment Indicator (Feb)

• 12:30 - Eurozone ECB Monetary Policy Meeting Accounts

• 13:30 - US Durable Goods Orders (Jan)

• 13:30 - US Gross Domestic Product (Q4) Prel

• 13:30 - US Personal Consumption Expenditures Prices (Q4)

• 15:00 - US Pending Home Sales (Jan)

• 23:30 - Japan Tokyo Consumer Price Index (Feb)

• 23:50 - Japan Retail Trade (Jan)

Friday

• 07:00 - Germany Retail Sales (Jan)

• 08:55 - Germany Unemployment Change (Jan)

• 13:00 - Germany Consumer Price Index (Feb) Prel

• 13:30 - US PCE Price Index (Jan)

• 13:30 - US Personal Income (Jan)

• 13:30 - US Personal Spending (Jan)

Trump's China Strategy, Inflation Fears, and Shifting Market Sentiment

A few days after U.S. President Donald Trump told reporters last week that a new trade deal with China might be possible, he took a series of further measures targeting China.

The Trump administration issued a memorandum to the U.S. Committee on Foreign Investment—a body that reviews proposals from foreign entities seeking to purchase American companies or assets—calling for restrictions on Chinese investments in America's technology, energy, and other strategic sectors.

Additionally, Trump proposed levying fees on the use of commercial vessels as a countermeasure against China's dominance in commercial shipbuilding, and he argued that regulations concerning the listing of Chinese companies on American stock exchanges should be reexamined.

Furthermore, the new administration invited Mexican authorities to impose their own tariffs on Chinese imports. This move is aimed at increasing pressure on Chinese firms that shifted production to Mexico to avoid the tariffs imposed during Trump's first term.

These actions represent the most comprehensive and forceful measures Trump has taken against China since officially taking office. They point to an escalating risk of trade tensions between the United States and its largest economic rival—in complete contrast to the optimistic sentiment generated by his comments last week.

In response, Beijing urged Trump to stop politicizing economic and trade issues.

Nevertheless, China's $295 billion trade surplus with the United States remains a key agenda item for the new administration, with Trump labeling China a "foreign adversary." Consequently, these trade tensions between the world's two largest economies are likely to continue unsettling the markets.

On another front, several reports published last week indicated that business activity in the United States had slowed, consumer confidence had declined, and inflation expectations had risen.

The S&P Global Purchasing Managers' Index for February fell to its lowest level in 17 months, as uncertainties surrounding Trump's trade policies dampened orders and business expectations.

While the manufacturing index expanded for the second consecutive month, the service sector—the primary engine of the economy—contracted for the first time in two years. However, some economists argue that certain factories ramped up production in anticipation of tariffs and caution that this surge may be temporary.

Meanwhile, overall input prices reached a five-month high in February, and input costs for manufacturing firms hit their highest level since October 2022. A significant majority of purchasing managers attributed this trend to tariffs and supplier-driven price increases.

At the same time, while input costs increased for service companies, output prices fell, widening the gap between the two to its largest extent since June 2023. This development indicates that profit margins for American companies are narrowing, a trend that is likely to impact the stock market.

Another report published on Friday revealed that American consumers' long-term inflation expectations have risen to their highest level since 1995. According to the University of Michigan's February survey, consumers expect inflation to average 3.5% over the next five to ten years, while their forecast for the next 12 months is 4.3%.

In addition, they anticipate that the unemployment rate will rise this year, reaching its highest level since 2020.

Inflation expectations can act as a self-fulfilling prophecy, ultimately triggering an actual increase in inflation. For this reason, this indicator is closely monitored by monetary policymakers, and a continued upward trend in expectations can influence their policy decisions.

However, as Chicago Fed President Austan Goolsbee noted after the report, a single report is not enough—policymakers need to see sustained increases across several reports before taking action.

Following a consumer price index that came in above expectations, traders may be able to glean additional insights this week from the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index.

According to a Bloomberg survey of economists, the core PCE index—excluding volatile food and energy costs—is expected to rise by 2.6% on an annual basis in January, marking its slowest increase since June 2024.

The persistence of inflation above the 2% target should reinforce the Fed's cautious stance on rate cuts. However, the absence of a rapid surge in the numbers could further ease bets that Trump's trade policies will trigger an acceleration in inflation—a speculation that has already begun to cool recently.

Futures traders are now pricing in the Fed's first rate cut of the year for July instead of September, while bets for a cut in May surged to nearly 30% last week. A moderate inflation report could further fuel speculation that the Fed might ease rates earlier than expected, potentially undermining the dollar's strength.

In conclusion, traders will continue to closely monitor forthcoming U.S. economic data and Trump's next moves on tariffs. Meanwhile, Elon Musk's efforts to reduce federal government spending are also under scrutiny, with growing concerns that these measures could have a larger negative impact on economic growth and the labor market than previously anticipated.

Amid the economic uncertainty driven by Trump's policies, such developments have the potential to dampen sentiment regarding the U.S. economic outlook.

Gold Nears All-Time High Amid Fed Cut Hopes and Global Trade Tensions

Gold prices continue to trade just one step away from reaching all-time highs as the new week begins, following their eighth consecutive weekly gain—the longest streak since 2020.

Gold demand is being bolstered by both safe-haven buying amid uncertainties and traders moving forward expectations of a Fed rate cut. Lower interest rates are favorable for a non-yielding asset like gold.

This week, it is expected that U.S. inflation data will show that price pressures have not increased as much as previously anticipated—potentially boosting bets on an earlier-than-expected Fed cut and providing a tailwind for gold.

In addition, attention will remain on President Trump's trade and geopolitical agendas. His latest action plan targeting China keeps trade war concerns alive, while potential developments in the Russia-Ukraine conflict are also being closely watched following his involvement.

Uncertainty from multiple sources may continue to heighten market volatility, making it likely that traders will keep flocking to safe-haven assets.

Merz's Triumph: Paving the Way for Germany's Economic Revival

The German elections, which had been weighing on the regional economy due to ongoing political uncertainties, were held on Sunday. As expected, the winner was the leader of the conservative opposition, Friedrich Merz.

Merz's bloc secured 28.5% of the vote, while the Alternative for Germany followed with 20.8%. It is anticipated that Merz will form a strong coalition with one or two mainstream parties. This could pave the way for reforms that might rejuvenate Germany's economy—the largest in the eurozone—that has been facing challenges recently.

The new government is expected to be more business- and investment-friendly, likely resulting in increased spending. Such a shift could boost sentiment regarding the regional economy and potentially lead to a strengthening of the euro.

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