Market movers today
Today, we are publishing the fourth paper in a series of five on inflation and what it means for financial markets. In this paper we look into what it means for fixed income. See Part 4: EUR Fixed Income – Misaligned rates and inflation markets .
In the US, we have two important data releases. Based on the higher-than-expected CPI data in January, we estimate PCE core rose 0.3% m/m (close call between 0.3% and 0.4% in the case of CPI, so do not be surprised by a 0.4% print here). We think this would be enough to lift the PCE core inflation rate to 1.6% (consensus 1.5%). ISM manufacturing is also due out today and we estimate the index to have been broadly unchanged around the current level of 59.1. We have seen mixed signals from Markit PMI and regional PMIs.
The Fed’s Jerome Powell is due to testify before the Senate Banking Committee but we do not expect him to say anything new. In our view, Powell was slightly hawkish on Tuesday, see Flash Comment US: Powell says ‘personal outlook has strengthened’.
In the UK, we estimate the PMI manufacturing index stayed around 55.3 in February. Also, keep an eye on any new Brexit comments and possible leaks from PM Theresa May’s speech tomorrow (usually leaked late afternoon).
In the Scandies, PMI manufacturing is due in both Norway and Sweden.
Selected market news
Risk sentiment soured yesterday as investors worry about faster Fed rate hikes and some signs that the global cycle is weakening. The losses in the stock market should also be seen in the light of the recent market recovery, which may have been used by investors to take some risk off the table. Bond yields retreated again yesterday, adding to signs that the big bond market sell-off seen in the first two months of the year is over for now. US data also surprised on the downside again as Chicago PMI fell to 65.7 in February from 61.9 and pending home sales dropped 4.7% m/m in January. Bonds also got some tailwind from a slide in oil prices following data, which showed a rise in US oil inventories.
In China, the private version of manufacturing PMI from Caixin surprised on the upside rising to 51.6 in February (consensus 51.3) from 51.5 in January. It is in sharp contrast to the official PMI manufacturing from NBS released yesterday, which surprised strongly on the downside. Which one is right? We belief the true picture is somewhere in the middle. That China is slowing but only moderately – as also signalled by the development in global metal prices where the upward pace has eased somewhat but not pointed to a sharp slowdown in demand.
US President Donald Trump warned China again yesterday on the trade front, saying that the US will use ‘all available tools’ to protect the US from China’s state-driven economic model, which he says undermines global competition, see Bloomberg . The warning came in the President’s annual report to Congress on his trade-policy agenda.
