Services activity in the US pulls back

The US ISM services index dipped in February to 52.6, down from 53.4 a month earlier and missing expectations. Breaking down the sub-components of the index gave a relatively mixed picture with employment moving below 50, implying contraction, while new orders rose to 56.1, its best print since August last year. Prices paid dropped substantially, down by more than 5 points in a single month to a still relatively high 58.6. That helped to eliminate the sharp uptick recorded in January when prices paid rose to 64.

Elsewhere in the US factory orders fell by more than expected in January, dropping by 3.6%. That compares with a decline of just 0.3% recorded in December. The index was more positive when stripping out volatile defense and aircraft orders, recording no change in January compared with a decline of 0.6% in December. The decline in the headline index looks to be largely down to a drop in aircraft orders after an accident on a commercial airliner earlier this year.

The final estimates of Eurozone PMIs for February were slightly better than the flash with the Eurozone-wide composite PMI at 49.2, up from 48.9 on the flash. Services remains in expansion at 50.2 while at a country level composite PMIs in Germany, France and Italy were all upgraded. Italy’s print was the strongest among the major economies at 52.2, up from 51.2 on the flash estimate. In the UK, the final estimate for the composite PMI of 53 was slightly lower than the flash at 53.3. The UK service PMI printed at 53.8.

Today’s Economic Data and Events

• 14:00 EC retail sales y/y Jan: forecast -1.3%
• 17:15 US ADP employment change Feb: forecast 150k
• 18:45 CA Bank of Canada rate decision: forecast 5%
• 19:00 US JOLTS job openings Jan: forecast 8,850k

Fixed Income

• US Treasuries recovered some of their losses from earlier in the week with yields on the 2yr UST down 4bps at 4.5579%. The 10yr UST was even stronger with a drop in yields of 6bps to 4.1525%.
• Fitch affirmed their ‘B+’ sovereign rating on Bahrain with a stable outlook.
• Al Rajhi Bank is pricing a USD 5yr sustainable sukuk at around the T+120 area.
• Doha Bank priced a USD 500m 5yr issue at T+130.

FX

• Currency markets were relatively quiet overnight with the broad DXY index closing near unchanged. EURUSD settled flat at 1.0857 while GBPUSD nudged higher by 0.1% to 1.2705. USDJPY was the biggest mover with a drop of 0.3% to 150.05.
• Commodity currencies all dropped by about 0.1% with USDCAD at 1.3593, AUDUSD at 0.6503 and NZDUSD closing at 0.6087.

Equities

• Equity markets closed lower overnight with the Dow Jones down more than 1% along with the S&P while the NASDAQ slumped almost 1.7%. European markets were also softer with the EuroStoxx index down by 0.4% while the FTSE was near unchanged.

Commodities

• Oil prices held their losses overnight with Brent futures down 0.9% at USD 82.04/b and WTI falling by 0.8% to USD 78.15/b. The API reported a build in crude stocks of around 400k bbl last week though there were decent draws in gasoline and distillates.