US ISM services index rises to four-month high

The US ISM services index rose to a four-month high in January, rising 2.9 points to reach a value of 53.4. The print exceeded consensus expectations for an uptick to 52 from 50.5 the month prior. The price paid sub-component rose sharply, increasing to a value of 64 from 56.7 in December, its highest level since February 2023, suggesting that prices are increasing at a faster pace. There was also a rise in the employment sub-component, with the index value rising above the neutral-50 mark, from a value of 43.8, indicating an expansion.

Turkish inflation accelerated sharply in January, reaching 6.7% m/m, the fastest monthly price gain since August, up from 2.9% m/m in December. On an annual basis inflation rose to 64.9% in January, from 64.8% y/y in December, above the consensus prediction of 64.6%. The services sector in particular saw strong rises as health and hospitality prices rose swiftly. Core inflation was up 4.1% m/m and 70.5% y/y. A new central bank governor, Fatih Karahan, has been appointed after Hafiz Gaye Erkan’s departure over the weekend. Karahan made a statement on Sunday where he said that the TCMB’s focus would be on getting inflation under control. Along with the upside surprise in January data, this potentially leaves the door open to further hikes in the one-week repo rate.

Updates published in the OECD’s February interim outlook forecast world growth of 2.9% in 2024. While this is a slowdown from an estimated growth rate of 3.1% in 2023, it is slightly higher than the pace of growth expected for 2024 in the November forecast round. Expectations for growth in the Euro area have been revised down, with the OECD expecting growth of just 0.6% in 2024, down from 0.9% in November. In contrast, forecasts for US 2024 growth have been revised up to 2.1%, from 1.5% in November, supported by household spending. Despite expecting headline inflation in most G20 countries to return to target levels by end-2025, the OECD cautioned against cutting interest rates too soon, given still-tight labour markets and the risks posed to inflation from heightened geo-political tensions.

Today’s Economic Data and Events

• 11:00 GE factory orders Dec: forecast -0.2% m/m

Fixed Income

• US Treasury yields rose again on Monday, following the strong ISM services index reading for January. The 2yr UST yield rose 11bps to reach 4.4722% while the 10yr gained 14bps to 4.1579%. Increasing yields were seen in other major bond markets on Monday’s trade too, with the UK 10yr Gilt up 9bps to 4.0046% and the German 10yr Bund up 8bps to 2.314%.
• Fitch affirmed Saudi Arabia’s ‘A+’ sovereign rating with a stable outlook. The ratings agency noted Saudi Arabia’s “strong fiscal and external balance sheets” with substantial buffers both for government spending and to insulate the current account. Fitch expects a smaller current account surplus in 2024-25 while output investment from PIF will “moderate.”
• The sovereign wealth fund of Türkiye has mandated banks for a USD 5yr benchmark bond issuance.

FX

• The dollar continued to see gains against peer currencies on Monday, driven by the robust ISM print and comments from a variety of Fed officials cautioning against expectations of an imminent rate cut. The dollar spot index rose 0.5%. EURUSD fell 0.42% to 1.0743 while GBPUSD dropped 0.75% to 1.2536. USDJPY gained 0.2%, to reach 148.68.
• Commodity currencies were also weaker on the day, with AUDUSD dropping 0.45% to 0.6483 and NZDUSD declining 0.16% to 0.6055, while USDCAD rose 0.57% to 1.354.

Equities

• Concerns about the timing of the Fed cut, given continued strong economic data, offset strong earnings results to pair back earlier gains in US equity markets on Monday. The Dow Jones fell 0.71%, the S&P 500 dropped 0.32% and the NASDAQ declined by 0.2% on the day. European markets were also marginally weaker. The DAX fell 0.08%, the CAC 40 declined by 0.03%, and the FTSE dropped 0.04%.
• Locally, the DFM rose 0.05% on Monday, while the ADX declined 0.35%.

Commodities

• Oil prices made small gains on Monday, with markets weighing heightened geo-political risk against stronger-than-expected US economic data. Brent futures rose 0.85% to USD 77.99/b while WTI gained 0.7% to USD 72.78/b.