Chinese PMIs indicate slowing growth momentum

• China’s growth momentum slowed in February with both the manufacturing and non-manufacturing PMIs easing from January.  The manufacturing PMI fell to 50.6 from 51.3 while the non-manufacturing PMI declined to 51.4 from 52.4 in January. Factory closures during the Lunar New Year likely weighed on activity, as did travel restrictions due to the coronavirus. The Caixin manufacturing PMI told a similar story as it slipped from 51.5 in January to 50.9 in February, missing consensus projections of 51.4.
• The House of Representatives passed President Joe Biden’s USD 1.9tn coronavirus relief package early Saturday, giving the president his first legislative win. Democrats who control the chamber passed the measure along a party-line vote of 219 to 212. The American Rescue Plan would pay for vaccines and medical supplies and send a new round of aid to households, this includes USD 1,400 direct payments to individuals, a USD 400-per-week federal unemployment benefit through August 29, and help for paying rents and home mortgages for those facing difficulties during the pandemic. The vote now moves to the Senate, where Democratic Vice President Kamala Harris may have to achieve a tie-breaking vote in a chamber where Republicans control 50 seats and Democrats and their allies control the other 50. A key sticking point for democrats will be the minimum-wage increase, which may have to be stripped from the bill due to the complicated rules that govern the Senate. The wage hike did not qualify for special treatment that allows the rest of the bill to be passed with a simple majority, rather than the 60 votes needed to advance most legislation in the 100-seat chamber.
• US consumer spending increased by 2.4% m/m in January, the most in seven months, positioning the economy for faster growth in the first quarter. Consumers bought motor vehicles, recreation goods, food and beverages. They also increased spending on services such as hotel accommodations and restaurants, as well as doctor visits. Adjusted for inflation, consumer spending increased 2% m/m last month after decreasing 0.8% m/m in December. Government pandemic relief money and dropping Covid-19 infections supported consumer spending. The consumer spending report came on top of upbeat data this month on manufacturing output, building permits and home sales. Meanwhile, personal incomes rose 10.0% m/m on the back of USD 600 stimulus cheques and enhanced unemployment benefits in December, pushing the savings rate up to 20.5% in January. 
• The personal consumption expenditures (PCE) price index excluding the volatile food and energy component rose 0.3% m/m after a similar gain in December and increased 1.5% y/y after advancing 1.4% y/y in December. The core PCE price index is the Fed's preferred inflation measure for its 2% target, a flexible average. Fed Chairman Jerome Powell this week told lawmakers that the US central bank would keep interest rates low and continue to pump money into the economy through bond purchases "at least at the current pace until we make substantial further progress towards our goals (maximum employment and inflation)."
• Britain’s finance minister Rishi Sunak will use the budget next week to warn of "enormous strains" in the country's finances, signalling that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times. Mr. Sunak said while there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, Britain's finances were now "exposed." The minister pointed that a one percentage point increase across all interest rates was GBP 25bn a year to the government's cost of servicing its debt. The UK government has already spent more than GBP 280bn in coronavirus relief and tax cuts this year. The March 3 budget will likely include a new round of spending to support the economy, a new mortgage scheme targeted at people with small deposits, and a new GBP 100mn pound task force to crack-down on Covid-19 fraudsters exploiting government support schemes.
• Saudi central bank net foreign assets declined by –USD 3.5bn in January to USD 445.6bn.  Broad money supply declined -1.0% m/m but was up 9.2% y/y while private sector credit growth accelerated 1.6% m/m and 14.4% y/y. Public sector borrowing also picked up to 17.8% y/y from 16.2% y/y in December.
• Petrol prices in the UAE will rise 11.7% m/m in March, the first change in the price at the pump since April 2020.  Crude oil prices were up 12.9% m/m and 12.3% y/y in February.

Today’s Economic Data and Events

• 05:45 China Caixin Manufacturing PMI (Feb) Forecast 51.5      
• 12:55 German Manufacturing PMI (Feb) Forecast 60.6              
• 13:30 UK Manufacturing PMI (Feb)  Forecast 54.9                      
• 19:00 USD ISM Manufacturing PMI (Feb) Forecast 58.8            

Fixed Income

• Global bond markets experienced heightened volatility last week as rising inflation expectations combined with a failed US Treasuries auction to cause havoc. Yields on 10y USTs spiked intraday on Feb 25th to as high as 1.61% while yields on 10yr bunds moved as high as -0.20%. Markets did eventually calm down toward the end of trading but not enough to erase weekly losses across all major bond indices.
• Yields on the UST curve ended the week higher although the near 7bps rise in 10yr yields to 1.405% masked the volatility of Thursday’s action. The front end wasn’t spared either though and yields on 2yr USTs closed the week up 2bps at 0.127% after having moved as high as 0.19% mid-day on Thursday.
• Central banks attempted to assuage markets during the course of trading with US Federal Reserve chair Jerome Powell saying rising bond yields was a mark of confidence in the US economy while the Reserve Bank of Australia stepped up bond purchases to quash yields moving up to almost 2%.

FX

• The dollar recorded its strongest weekly performance since mid-January as investors flooded out of risk assets. The DXY index gained 0.57% last week to settle at 90.879 as it benefitted from bids for safe havens.
• Selling was universal in FX markets with the Euro dropping 0.8% on Friday alone, taking it to a weekly close of 1.2075 or down 0.4% while GBP was off by 0.6% on the week and closed back below the 1.40 handle at the end of the week. USDJPY pushed back above 106 as the Yen failed to find risk-off support.
• Performance among commodity currencies and emerging market FX was even starker. The AUD was off more than 2% last week despite the RBA’s intervention to stabilize bond yields while the CAD was weaker by almost 1% and the NZD down by 0.9%. In the EM space USDTRY rose by 6.6%, virtually erasing its ytd gains, while ZAR was weaker by nearly 3% against the dollar and the INR was a relative outperformer, declining by just 1.1% to close at 73.47.

Equities

• Global equity indices endured a parlous week last week, with Friday in particular seeing a sea of red around the world. Worries regarding a coming inflationary spike on the back of the massive stimulus and loose monetary policy still prevalent globally were exacerbated by high-profile commentary towards the end of the week, with a resultant risk-off tone.
• In the US, the NASDAQ was the biggest loser of the three primary benchmark indices, closing down -4.9% w/w. The index posted most of these losses on Thursday when it lost -3.5%, but it clawed back some of these with a 0.6% gain on Friday while the Dow Jones and the S&P 500 both closed lower on the last day of the week. The S&P was the second-biggest loser, dropping -2.5% w/w, while the Dow Jones lost -1.8%.
• It was a similar story in Europe, where in the UK the FTSE 100 closed down -2.1% w/w, after its biggest one-day drop since October on Friday, when it lost -2.5%. The European composite STOXX 600 lost -2.4% w/w as the CAC and the DAX lost -1.2% and -1.5% respectively.
• There were losses across the board in Asia also, as the Indian NIFTY lost -3.0% w/w, the Shanghai Composite closed -5.1% lower and the Hang Seng lost -5.4%.
• Within the region the DFM lost -2.0% w/w, but the Tadawul bucked the global trend as it gained 1.9%.

Commodities

• Oil prices pushed higher last week with Brent futures adding more than 5% to settle at USD 66.13/b while WTI closed at USD 61.50/b, a weekly rise of 3.8%. Market attention will be on the OPEC+ ministerial meeting at the end of this week where we anticipate there will be division between producers favouring increasing output and those wanting to see the market continue to run hot, particularly Saudi Arabia.
• Forward structures moved higher as well with near term time spreads pushing up sharply. Longer-dated spreads for Dec 21/22 also improved with WTI’s spread moving to USD 3.89/b in backwardation at the end of the week while the same spread in Brent markets moved up to USD 3.40/b.
• Exploration and production firms in the US added another four rigs to production last week, taking the total to 309, an increase of nearly 140 rigs since a trough in mid-2020.

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