US ISM index remains strong

The US ISM services index reading was strong again in February, reaching a value of 55.1, only marginally lower than the 55.2 recoded in January, and above consensus expectations of 54.5. There was relatively broad-based strength, with 13 industries reporting growth and only 4 reporting a decline. The business activity sub-component remained robust, although it did tick down to 56.3 from 60.4 in January. New orders rose to 62.6 on the month from 60.4 in January. There was also a rise in the employment measure, which rose to 54 in January from 50 the month prior.    

Saudi Arabia’s non-oil private sector activity expanded again in February, with the headline Riyadh Bank PMI reading rising to 59.8 from 58.2 in January. The index is now at its highest level since March 2015. There were increases in new orders, output, employment and prices on the month. 

Indian private sector output remained in expansion territory for the 19^th consecutive month in February, with the S&P composite PMI rising to 59 from a value of 57.5 in January. The rise in the composite index was driven by strong growth in the services sub-component. Output in the services sector expanded at its fastest pace in 12 years, with the services PMI rising to 59.4 in February from 57.2 the month prior. The uptick in the services index was supported by a strong rise in new business orders as well as a moderation in input cost pressures.

Turkish inflation slowed slightly more than had been expected, with CPI falling to 55.2% y/y in February from 57.7% y/y in January. On a month-on-month basis prices rose 3.2% in February, down from a 6.65% m/m rise in January. While the headline rate has seen a substantial deceleration in recent months, in part due to favourable base effects, supply chain disruptions and a fiscal response in the wake of the recent earthquake may add to inflationary pressure in coming months.    

The National People’s Congress opened on Sunday, with Chinese officials announcing a 5% growth target for 2023. If achieved this would represent a rise from the 3% growth seen in 2022, but would still be significantly below pre-pandemic era growth.

Today’s Economic Data and Events

• 13:30 UK S&P Global/CIPS construction PMI
• 19:00 US factory orders Jan: forecast -1.5%

Fixed Income

• US Treasuries managed to gain something of a rebound in trading at the end of the week, despite a lack of any material catalyst to support the move. Yields on the 2yr UST dropped about 3bps on Friday to 4.8565%, paring their rise to just 4bps for the week as a whole. The 10yr UST yield fell about 10bps to 3.9517%, keeping the 10yr roughly unchanged on the week.
• Mary Daly, president of the San Francisco Fed, said that “there is more work to do” on rates in the US and that “further policy tightening, maintained for a longer time” will be needed to get inflation closer to target levels. The Fed meets on March 22 with market pricing evenly split between a 25bps and 50bps hike.
• European bonds also closed stronger at the end of the week with yields on 10yr bunds falling 3bps to 2.707% while 10yr gilt yields dropped 3bps to 3.844%.
• Central banks in Australia, Canada and Malaysia set policy this week while the Bank of Japan meets at the end of the week.

FX

• The dollar fell for the first week in the last five, falling against all major peers. The broad DXY index declined by 0.7% last week, tempering its year-to-date gains to about 1%. EURUSD rallied by 0.8% over the week to 1.0635 with a gain of 0.4% on Friday alone. GBPUSD was another notable gainer, up 0.8% over the week to GBPUSD 1.2036, including a gain of 0.8% on Friday. USDJPY fell by 0.7% at the end of the week to 135.87, taking its weekly drop to 0.4%.
• The Canadian dollar was the relative underperformer among commodity currencies with USDCAD settling flat on Friday at 1.3598, a weekly decline of 0.1%. AUDUSD by contrast rose 0.6% on Friday to 0.677 to take its weekly gain to 0.7% while NZDUSD closed flat on Friday at 0.622 but managed gains of 0.9% over the week.

Equities

• Equity markets largely had a better week last week than the one before, with almost all major indices ending the week in the green after some strong gains on Friday. Friday’s positivity started in East Asia, where the Hang Seng ended the week up 2.8% w/w, compared to a 3.2% loss the previous week. The Shanghai Composite recorded another weekly gain as it added 1.7% w/w, with strong Chinese PMI data contributing to the gains in both. In Japan, the Nikkei ended up 1.4% w/w.
• The positive mood continued in Europe where the composite STOXX 600 ended the week 1.4% higher. The CAC gained 2.2% w/w and the DAX 2.4%, while the FTSE 100 was the laggard with a w/w gain of 0.9%. In the US, strong gains on Friday saw the Dow Jones, the S&P 500, and the NASDAQ close up 1.2%, 1.6%, and 2.0% w/w respectively.
• Locally, the mood was moderately positive with the ADX adding 0.2% and the DFM 0.7%. In Saudi Arabia the Tadawul added 3.4% over the week, with oil price gains contributing to the positive mood.

Commodities

• Oil prices had a fairly robust end of the week with Brent up 1.3% to USD 85.83/b while WTI climbed nearly 2% to USD 79.68/b. For the week, both contracts closed higher; Brent up 3.2% and WTI adding 4.4%.
• Trading on Friday showed some whipsaw movements as the UAE denied rumours that it was planning on leaving OPEC, refuting commentary in some financial press. Internal OPEC frictions have bubbled to the surface several times over the last few years though overall policy making withing the exporters’ alliance remains intact.