February 22, 2023

Daily Report 22/02/2023

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The UK PMI manufacturing index improved to a 7-month high of 49.2 from 47.0 and above expectations of 47.5. There was a strong improvement in the services sector to an 8-month high of 53.3 from 48.7 and well above consensus forecasts of 49.2. The composite output index also strengthened to an 8-month high. There was net growth in new orders for the first time in seven months with the rebound again led by the services sector. There was a slight easing of input-price inflation while there was only a slight slowdown in the rate of output-price increases. The stronger than expected data boosted confidence in the outlook and also sparked fresh speculation that the Bank of England would have to increase interest rates further to bring inflation under control.

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The French and German PMI business confidence data releases were mixed with significant gains in the services sector while there was renewed deterioration within the manufacturing sector as divergence in the economies intensified. This overall pattern was repeated for the Euro-Zone as a whole with other countries out-performing France and Germany. The manufacturing sector edging lower to a 2-month low of 48.5 from 48.8 previously and below consensus forecasts of 49.4. In contrast, the services-sector figure improved to an 8-month high of 53.0 from 50.8 and above expectations of 51.0. The composite output index also strengthened to a 9-month high. Input prices for manufacturing increased at the slowest rate since September 2022, but there were stronger increases in services while overall increase in output prices remained very high, but at a slightly slower pace than in January.

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In case headline PMIs decline further in early February, the US Dollar (USD) could have a hard time finding demand in the American session. Comments on wage pressures will also be scrutinized by participants. If the surveys show that input prices continued to rise at an accelerating pace, especially in the service sector, due to rising wages, the USD could outperform its rivals. Meanwhile, US stock index futures are down between 0.6% and 0.9% amid escalating geopolitical tensions. Following his unannounced visit to Ukraine, US President Joe Biden will be in Polish capital Warsaw on Tuesday and is expected to say that they will increase Nato presence in the country to ramp up the security. China’s top diplomat, Wang Yi, will reportedly arrive in Moscow and this development is likely to further escalate the tensions between China and the US.

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19:00  FOMC Minutes