PMI data shows broad cooling in major economies in January

PMI surveys set the tone at the end of last week with preliminary January readings across multiple economies. India’s services PMI eased to 56.8 in January from 59.3 a month earlier while manufacturing activity improved, rising to 58 from 56.4. In the Eurozone there was a moderate improvement in the composite PMI for January to 50.2 from 49.6 in December though that was mainly helped by a manufacturing print that, while still implying contraction at 46.1, wasn’t as bad as had been expected. At a national level France’s indicators all remain below 50 while there was an improvement in Germany’s services component to 52.5 in January, up from 51.2 a month earlier. Manufacturing, however, deteriorated in Germany.

For the US the S&P Global services PMI slowed sharply to just 52.8 from 56.8 a month earlier. There were some signs of positivity in the index but uncertainty over tariffs and trade likely weighed on respondents. In the UK both services and manufacturing improved month on month.

In the US the University of Michigan sentiment survey dropped to 71.1 for January from 73.2 a month earlier. Year-ahead inflation expectations remained steady at 3.3% while longer run inflation expectations moderated slightly to 3.2% from 3.3% in the previous print.

Official PMI data from China showed a slowdown in activity in January with manufacturing moving back below 50 at 49.1 and the non-manufacturing index easing to 50.2 from 52.2 a month earlier. The overall composite PMI implies static activity with a print of just 50.1. The start of Lunar New Year holidays in China and the risk of US tariffs could set the economy up for several weeks of soft economic data.

Egypt received a USD 2bn syndicated loan from a group of banks to finance the country’s budgetary requirements. There was participation in the deal from both international and regional banks.

Today’s Economic Data and Events

• 13:00 GE IFO business climate January: forecast 84.8
• 19:00 US new home sales December: forecast 672k
• 19:30 US Dallas Fed manufacturing index: forecast -3.0

Fixed Income

• It was a choppy final session for US Treasuries at the end of the week as markets responded to US President Donald Trump’s call for lower rates. Yields on the 2yr UST yield fell 2bps to 4.2655% while the 10yr yield fell 2bps to 4.6214%. The 2s10s curve ended relatively unchanged at about 34bps.
• Regional credit indexes had a broadly positive end to the week with a GCC wide index compiled by Bloomberg up 0.1% in the final session. UAE, Saudi Arabia and Qatar markets all ended higher by about 0.1% on Friday while Kuwait, Oman and Bahrain were near flat.

FX

• The US dollar came lower at the end of the week, selling off against all peers. EURUSD managed a gain 0.8% to settle just shy of 1.05 level while GBPUSD rose by 1.1% to close at 1.2484. USDJPY was near flat at 156 as markets faded JPY strengthening on the back of the Bank of Japan’s 25bps hike at the end of last week.
• Commodity currencies also closed higher against the USD with USDCAD down by 0.3% at 1.4341 while AUDUSD managed a rise of 0.5% to 0.6314 while NZDUSD was higher by 0.6% at 0.5709.
• The Indian rupee gained on Friday with USDINR down by 0.3% at 86.205 while USDTRY was flat at 35.6719.

Equities

• US benchmark equities ended Friday lower with a drop of 0.3% in the Dow Jones and the S&P 500 off by the amount. In President Trump’s first week back in the White House the Dow Jones added 2.2% while the S&P 500 gained 1.7%.
• European markets were more mixed with the FTSE 100 weighed down by weaker oil prices sinking resource oriented stocks while the Euro Stoxx 50 index closed flat.
• In the region the DFM ended Friday down by 0.4% while the ADX managed a gain of about 0.3%. The Tadawul was near flat with a negative bias while the EGX 30 closed near flat on Thursday and Istanbul 30 index dropped 0.3%.

Commodities

• Oil futures stemmed some of their selling at the end of the week with Brent up 0.3% at USD 78.50/b and WTI barely higher at USD 74.66/b. However, both contracts were lower on the week as a whole, their first weekly decline since mid-January. President Trump’s call on OPEC countries to lower prices will send some unease through markets even as it is unclear how he intends to push for it.
• Gold prices remained bid on Friday, closing up 0.6% at USD 2,770/troy oz while industrial metals were mixed. Aluminium and copper on the LME closed higher as did iron ore while zinc, nickel and lead were softer.