17 February 2021
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US Empire Manufacturing Survey beats expectations

The US Empire manufacturing survey exceeded expectations in February, coming in at 12.1 compared to 6.0.

By Daniel Richards

  • The US Empire manufacturing survey exceeded expectations in February, coming in at 12.1 compared to 6.0. This is up from the 3.5 recorded in January and reflects growing optimism in the US that the easing of the pandemic crisis, alongside massive proposed government stimulus, should facilitate an economic rebound in 2021. On the back of this, capital spending plans saw the biggest increase since early 2019, while business optimism rose from 31.9 to 34.9.
  • There was relatively positive data in Europe yesterday, where the Eurozone recorded an economic contraction of -0.6% q/q in the fourth quarter, revised up narrowly from the preliminary reading of -0.7%. The contraction was driven by some of the bloc’s larger economies, with France (-1.3%) and Italy (-2.0%) seeing sizeable contractions as pandemic-related restrictions were reimposed, while Germany managed to eke out growth of 0.1%. Nevertheless, a number of countries surprised to the upside, and according to Eurostat data released yesterday, employment rose 0.3% q/q in the period. While this was still down -2.0% y/y, it suggests a growing economic resilience to the pandemic-induced lockdowns. The ZEW Eurozone expectations of economic growth survey also suggested a more positive outlook in Europe, despite the difficulties the bloc has had with its vaccination rollout thus far. The index rose to 69.6 this month, the highest level since September and up from 58.3 in January.
  • Saudi inflation accelerated 0.2% m/m (5.7% y/y) in January from -0.2% m/m (5.4% y/y) in December.  While food, housing, clothing and furnishing prices fell m/m in January, this was offset by a 2% m/m rise in transport costs as well as higher prices for communication, recreation & culture, and hotels & restaurants.  We expect the annual rate of inflation to slow sharply in H2 once the July 2020 tax hike is in the base.  
  • Bahrain’s ruler has signed a decree to restructure government ministries and institutions in order to improve their efficiency and performance.  The prime minister’s advisors have been made redundant, and new directors for various functions have been appointed. In its recent visit to Bahrain, the IMF urged the authorities to implement economic reforms to reduce the budget deficit.
  • Real GDP growth in Israel came in significantly higher than anticipated in the fourth quarter, climbing 6.3% q/q on an annualised basis, compared to consensus projections of a -3.7% contraction. Growth in Q3 was revised up from 39.7% to 41.5%. Despite the second national lockdown that began in September and extended into October, and the third that began at the end of December, private consumption recorded growth of 18.2%. Looking ahead, the rapid vaccination rollout that has been implemented in Israel suggests a robust recovery in 2021, although high unemployment (12.9% when including the pandemic effect) and an appreciating shekel could put a dampener on growth.

Today’s Economic Data and Events

  • UK CPI inflation, y/y: 11:00, forecast 0.6%
  • South Africa CPI inflation, y/y: 12:00, forecast 3.3%
  • US retail sales advance m/m: 17:30, forecast 1.0%
  • US industrial production, m/m: 18:15, forecast 0.4%
  • US FOMC January meeting minutes: 23:00

Fixed Income

  • US Treasuries extended their slide as the reflation trade narrative remains dominant in markets, even if global equity markets were shaky overnight. Yields closed higher across nearly the entire curve with 2yr USTs up by 1bp while 10yr yields moved above 1.30% and closed up almost 11bps higher. So far officials from the Federal Reserve have been quiet as to whether the rise in bond yields runs at odds with their plans to keep policy accommodative enough to support the recovery from the Covid-19 pandemic.
  • Bond markets across Europe saw similar sell-offs overnight with gilt yields move above 0.61% and French and German bonds seeing 4bps and 3bps gains in yields respectively. The rise in UST yields is still pressuring EM bonds with yields rising across Indonesia, Turkish and South African 10yr local currency bonds.
  • Regional primary markets are quiet at the moment. UAE USD-denominated bonds have fallen three of the last four trading days while options-adjusted spreads are holding around 122bps.


  • The US dollar reversed course sharply overnight, starting the day with some heavy selling and then ascending in line with upward move in UST yields. While the overnight gains were modest—at less than 0.05%—they marked the third day in a row of gains. The greenback is up more substantially in trading this morning, rising 0.14% on the broader DXY index.
  • The Euro’s muted 0.19% decline disguises sharp moves during the course of the day when it did rally to 1.1269 at mid-day only to close out just above 1.21. Sterling likewise gave away intraday highs of 1.3952 to hit as low as 1.3869 and ended the day near unchanged. The patterns was repeated across commodity currencies with the AUD, NZD and CAD losing ground against the dollar in late trading.
  • Emerging market currencies weren’t spared the sell-off either with TRY giving back some of its gains from earlier this week with USDTRY closing up by 0.3% at 6.985. INR recorded a negligible drop while IDR and PHP depreciated against the dollar by 0.14% and 0.6% respectively.


  • Equity markets slipped yesterday even as treasury yields surged. In the US, the S&P 500 lost -0.1% and the NASDAQ -0.3%, although the Dow Jones managed to secure gains of 2.0%.
  • It was a similar story of modest losses in Europe earlier in the day as the composite STOXX 600 lost -0.1%. The FTSE closed -0.1% lower after briefly trading at a one-month high earlier in the day, while the DAX ended -0.3% lower.
  • In Asia, the Nikkei continued to post strong gains, climbing 1.3% to new multi-decade highs, although it has lost some ground in trading this morning. Mainland Chinese indices were closed for the Lunar New Year holiday on Tuesday, but the Shanghai Composite was trading 1.4% higher in morning trading at the time of writing.
  • Within the region, the DFM lost -1.2% while the Tadawul closed 0.2% higher. The EGX30 gained 0.1%.


  • Energy markets are transfixed by the freezing weather affecting much of the central US with Texas in particular bearing the brunt of the freeze. Oil prices slowed their rapid gains of the past few days with Brent closing nearly unchanged at USD 63.35/b while WTI added around 1% to settle above USD 60/b for the first time since January 2020.
  • Product prices appear to be leading the rally this time around with gasoline and heating oil futures up strongly—RBOB added 4.8% to settle at USd 177.29/g while NY heating oil closed up 2.4% at USd 181/g. Henry Hub natural gas prices jumped more than 7% as electricity demand has spiked, closing out at USD 3.13/MMbtu.
  • Gold prices gave way to the rise in UST yields, settling down by 1.3% at 1,795/troy oz, their second close below USD 1,800/troy oz this month. Silver and platinum were also notable losers, giving up 1.4% and more than 3% respectively.

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Written By

Daniel Richards Senior Economist

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