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Strong Macro Figures Out Of China And The US

Market movers today

In the US, the ISM manufacturing is due out this afternoon, which is expected to fall slightly.

In the euro area, we get preliminary HICP inflation for February. From the country HICP figures yesterday, we still expect euro area HICP to come in at 1.5% y/y (up from 1.4% in January, mainly on the back of higher energy prices, but also higher unprocessed food prices). There is downside risk to our expectation for core at 1.1% y/y, as French and Italian service price inflation decelerated, while that of Germany held steady.

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In the euro area, we also get the unemployment rate for January. In December, it was 7.9%.

In the UK, we expect PMI manufacturing to have declined to 51.0 in February. This is still higher than the equivalent euro area index due to stockpiling (Brexit preparations).

In Sweden and Norway, we get PMI manufacturing for February this morning. In Norway, we get employment data as well.

Selected market news

Chinese PMI manufacturing from Caixin for February surprised to the upside and gave the clearest sign so far that a bottom is forming in the Chinese business cycle. The index jumped 1.6 points from 48.3 to 49.9 and the new orders index increased from 47.3 to 50.2. It follows the official PMI manufacturing yesterday, which also showed a decent rise in new orders despite a decline in the overall index. We continue to look for a gradual recovery for the rest of 2019 on the back of stimulus and a trade deal with the US. Thus, it seems that the recent fiscal expansion and monetary easing has had positive effects on the Chinese economy. Asian markets are up 0.5-1.0% on the back of the strong news out of China, while Japan is helped on by a significantly weaker Yen (the Yen is down 2.5% YTD, and has erased most of its December gains).

US sources close to the US-China trade negotiations told Bloomberg that negotiators are targeting a Trump-Xi summit already in mid-March, where a trade deal could be signed. This backs comments from President Trump and White House economic advisor Larry Kudlow, saying on Thursday that a deal with China is edging ever closer.

US equities closed the day 0.3% lower despite stronger-than-expected GDP figures (although the personal consumption component did disappoint somewhat) as well as a much stronger-than-expected Chicago PMI (actual: 64.7, expected: 57.5). The large print was in part down to an increase of 15 points in the ‘new-orders’ sub-index. Equities did initially rally on the news, but fell back late in the trading session. The 10Y US treasury yield rose 3bp during the day.

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