Daily Report 02/03/2022

The UK manufacturing PMI index was revised to a final 58.0 for February from the flash reading of 57.3 and the strongest reading for seven months. Overall orders growth was strong, although exports were again disappointing. Pressure on costs and prices remained intense, although with a slight easing in the rate of increase. UK mortgage approvals increased to 74,000 for January from 71,200 previously and comfortably above consensus forecasts of 72,000 with firm consumer borrowing. Sterling initially held firm, but lost ground after the New York open as risk appetite deteriorated. There was also a fresh dip in interest rate expectations with money markets pricing in some doubts that there would be a rate hike at this month’s meeting with the probability weakening to around 90% which sapped Sterling support. Bank of England MPC member Saunders stated that the risks are on the side of stronger and more persistent inflation and that prompt tightening now could help limit the total scale of tightening that will be needed. He opposed running the economy hot and an increase in inflation expectations would be costly to reverse. He added that the Ukraine situation would complicate the situation. Fellow MPC member Mann stated that it was vital to curb inflation expectations. Hawkish rhetoric failed to trigger Sterling demand and risk appetite deteriorated.

No Key Data

The final Euro-zone PMI manufacturing index was revised lower to 58.2 from the flash reading of 58.4, although both the Italian and Spanish readings were slightly stronger than expected.  There was a slight slowdown in the rate of increases in costs and prices with pressure on delivery times fading slightly. The Euro gradually lost ground ahead of the New York open with a further dip in expectations surrounding any ECB policy tightening this year. German consumer prices increased 0.9% on the month with the year-on-year increase increasing to 5.1% from 4.9% and in line with market expectations.

Key Data 

10.00 HICP (YoY) (Feb) Exp. 5.4% Prev. 5.1%

The US ISM manufacturing index strengthened to 58.6 for February from 57.6 the previous month and above consensus forecasts of 58.0. There was a slightly faster rate of production growth for the month and a stronger increase in the rate of growth in new orders. Employment increased at a slightly slower rate on the month while supply-side difficulties increased. Prices increased at only a slightly slower rate of growth for the month. The dollar secured a tentative net advance after the data, although risk conditions had a larger impact. Market unease over the Ukraine situation gradually increased during the day. President Biden announced a ban on Russian flights to the US and overall risk sentiment remained fragile on Wednesday despite some support from China’s offer to act as a peacemaker.

Key Data

13.15 ADP Employment Change (Feb) Exp. 388K Prev. -301K
15.00 Jerome Powell Testifies