GLOBAL: Tsy Sec Bessent: China "In Need Of A Rebalancing"

NBC News reports that President Donald Trump is holding a Cabinet meeting this morning, according to a senior administration official.  Comes after a Cabinet meeting on March 8 appeared to expose cracks between Cabinet officials and Trump advisor Elon Musk over the breadth of cuts pursued by his 'Department of Government Efficiency'. Musk is expected to attend today's meeting. 

• The NYT noted last week: "The [March 8] meeting was a potential turning point after the frenetic first weeks of Mr. Trump’s second term. It yielded the first significant indication that Mr. Trump was willing to put some limits on Mr. Musk..."
• The previous Cabinet meeting also offered a departure from Biden-administration meetings, which took place largely behind closed doors, by offering extensive public coverage and generating a flow of headline news.
• Today's meeting is likely to again focus on federal government restructuring, after Trump gave Cabinet officials a March 13 deadline to submit plans for mass layoffs.
• Reuters reported on March 21: "White House officials are reviewing federal agencies' downsizing plans, a move expected to result in the mass firing of thousands of government workers within the coming weeks".
• A source told Reuters: "Trump is not involved with the review, which is being led by DOGE, the White House's Office of Management and Budget, and the Office of Personnel Management, the federal government's human resources arm, that source said."

Contained hawkish Fed repricing in the wake of the firmer-than-expected flash U.S. S&P services PMI reading, which seems to have outweighed a softer-than-expected manufacturing counterpart.

• ~65bp of cuts now priced into Fed Funds through year-end vs. ~67bp ahead of the data, sticking comfortably within the prevailing month-to-date range.
• 4.5bp of cuts priced through May, with 18.5bp showing through June and 30.5bp showing through July.
• Worth noting that tariff readthrough remains key for U.S. manufacturing data. The S&P survey noted that “factories reported fewer instances of output having been buoyed by the front-running of tariffs, and new orders growth came close to stalling in the goods-producing sector. Input buying in the sector also fell back into decline. However, export sales showed the smallest decline for nine months thanks to rising orders in particular from Canada, Germany and other EU countries, hinting at some further efforts to fulfil orders ahead of tariff implementation”.

The US flash March PMIs from S&P Global US chimed more closely with today’s UK release rather than Eurozone releases, with a solid upside surprise for service activity along with a negative surprise for manufacturing. Early tariff front-running looks to have passed in manufacturing but there was still a sharp acceleration in input cost inflation. 

• The press release does however caution this net improvement in business momentum with “business expectations for the year ahead fell to their second-lowest since October 2022 as companies grew increasingly cautious about the economic outlook, often citing worries over customer demand and the impact of aspects of the new administration's policies.”
• Manufacturing: 49.8 (bbg cons 51.7) in the March flash after 52.7 in February – its first sub-50 reading since Dec.
• Services: 54.3 (bbg cons 51.0) in the March flash after 51.0 in February – highest since Dec.
• Composite: 53.5 (cons 50.9) in the March flash after 51.6 in February.
   
• The services PMI at 54.3 is up from 51.0 in Feb and 52.9 in Jan as it moves back closer to a strong period through May-Dec 2024 when it averaged 55.5.
• It helps drive the market reaction but a readthrough to ISM services is always difficult: recall that February saw the ISM services index surprise 1pt higher with 53.5 despite the then almost 2pt decline in the S&P Global PMI.
• On the manufacturing side, there were signs that tariff front-running has passed, with manufacturing output declining after February saw a three-year high in output. “New orders growth came close to stalling in the goods-producing sector”.
• More broadly, input cost inflation continues to ramp up but pass-through is limited for now: “Input price inflation accelerated sharply, especially in manufacturing, to a near two-year high, often attributed to the impact of tariff policies. However, competition limited the pass-through of higher costs to selling prices.”