US manufacturing extends slump

The US ISM manufacturing index declined in March compared to February, dropping to 46.3, from 47.7 previously. This was also lower than the consensus prediction of 47.5 and marked the fifth month in a row that the index has been in contractionary sub-50 territory. Barring the pandemic period, this was the weakest reading since 2009, illustrating the weak demand in US factories at present. New orders declined more rapidly, suggesting that there will be further weakness in the headline reading in the coming months. Prices paid by firms declined once more after rising in February.

Turkish CPI inflation slowed in March, falling to 50.5%, compared with 55.2% the previous month. This undershot consensus projections also, which predicted 51.3%. Prices were 2.3% higher than in February. Core inflation also slowed, dropping to 57.4% y/y, from 50.6% previously, while PPI inflation slowed to 62.5%, from 76.6%. Lower energy costs have made a heavy contribution to the slowing price growth but the after effects of the earthquakes earlier this year and the loose fiscal policy in response to it will contribute to upwards pressure through the rest of the year, as will the loose monetary policy stance. The central bank’s next MPC meeting is scheduled for April 27; the one-week repo benchmark interest rate was kept on hold at 8.50% at the March 23 meeting. In other data from Turkey released yesterday, the manufacturing PMI survey for March came in at 50.9, up from 50.1 in February. This was the highest reading for the index since February 2022.

The S&P Global manufacturing PMI survey for the Eurozone was revised modestly upwards on the final reading yesterday, to 47.3 from the initial print of 47.1. Nevertheless, this remains substantially weaker than the 48.5 recorded in February and the index has been in sub-50.0 contractionary territory for nine consecutive months now.

Today’s Economic Data and Events

• 08:30 Australia RBA cash target rate. Forecast: 3.6%
• 18:00 US factory orders, February. Forecast: -0.5%
• 18:00 US durable goods orders, February final. Forecast: -1.0%
• 18:00 US JOLTS job openings, February. Forecast: 10.5mn

Fixed Income

• US Treasuries rallied in the US session thanks to a weak ISM manufacturing print for March. Yields on the 2yr UST fell 6bps by to close at 3.9634%, unwinding an earlier pop on inflation worries from the surprise production cut from OPEC+. Yields on the 10yr yield also dropped by about 6bps, settling at 3.4114%.
• European bond markets staged a rally overnight as well with bund yields down about 4bps to 2.247% and gilt yields falling by 6bps to 3.422%.
• Israel’s central bank hiked policy rates by 25bps, taking the target rate to 4.5%. The Reserve Bank of Australia sets policy today and is expected to keep rates unchanged.

FX

• Currency markets shook off early losses to start the week and ended the day substantially higher, helped along by a drop in UST yields. EURUSD added 0.6% to close at 1.0899 while GBPUSD jumped 0.6% to 1.2414. USDJPY fell 0.3% to 132.46 in a broad based move against the dollar.
• AUDUSD spiked by 1.5% ahead of today’s RBA meeting, closing at 0.6786 while across the Tasman NZDUSD rose by 0.6% to settle at 0.6297. USDCAD extended is moves in favour of the loonie for a sixth day in a row, settling at 1.3437, down 0.6%.

Equities

• Equity markets were somewhat mixed yesterday as they digested the implications of the move by some OPEC+ members to cut supply. In the US, the interest rate sensitive NASDAQ dropped 0.3%, but the S&P 500 added 0.4% and the Dow Jones gained 1.0%.
• In Europe, the DAX dropped 0.3% but the CAC gained 0.3%. The UK’s FTSE 100 closed up 0.5%.
• Local markets saw positive gains yesterday, with the ADX adding 0.8% and the DFM 0.9%. Saudi Arabia’s Tadawul gained 1.6%.

Commodities

• The effects of the surprise OPEC+ production cut continue to filter through commodity markets and in a first order effect have helped to boost spot oil prices. Brent futures closed up 6.5% overnight at USD 84.93/b while WTI rose by 6.3% to USD 80.42/b. Time spreads in both markets have widened their backwardations as well as the market will chase up any available barrel: Brent 1-6 month spreads settled at a backwardation of USD 2.85/b overnight compared with levels of less than USD 2/b a week ago.
• Political response from the US has been negative with US Treasury Secretary Janet Yellen saying the cuts were “unconstructive” while President Joe Biden said the impact of the cuts wont “be as bad as you think.”