Inflation data from the US and China, GDP from the US and Japan as well as employment numbers from Canada will be the most important economic news to monitor but markets will be swayed more by the developments in the Middle East.
USD
ISM manufacturing PMI for the month of February came in at 52.4 beating expectations of 51.8 and thus making a much smaller decline from 52.6 in January. Details of report paint a bleaker picture though with new orders easing to 55.5 from 57.1 the previous month. Employment index managed to improve a bit but it still stayed in contraction. The biggest shock was a surge in prices paid component which jumped to 70 from 60 in January signalling that price pressures are intensifying and casting worries about inflation picking up.
President Trump stated that most likely there will be no need for “boots on the ground” in Iran. He added that US will provide insurance for tankers and help escort vessels passing through Straight of Hormuz which briefly pushed oil prices lower but they rebounded the very next day and continued relentless rise into the end of the week.
February ISM Services PMI surged to 56.1 from 53.8 in January while markets were bracing for a decline to 53.5. This is the highest reading since July of 2023 and details paint a positive picture as business activity rose to almost 60, new orders, as well as new export orders, surged towards 60 with latter jumping there from contraction in January, and employment index moved further into expansion. Additionally, prices paid component declined, indicating lower inflation pressures, however it is still very elevated with above 60 reading. The reading is pointing towards a GDP of higher than 3%, however this survey was done before the breakout of US – Iran war.
February NFP was a big disappointment as headline number showed -92k vs 59k as expected. The unemployment rate ticked up only to 4.4% because participation rate plunged to 62% from 62.5% in January. U6 unemployment was a bright spot as it ticked down to 7.9%. Hourly wages grew by 0.4% m/m, same as the previous month and 3.8% y/y, a bit stronger than 3.7 y/y in January most likely because the people working the lowest paying jobs quit the labor market. Good-producing sectors lost 25k jobs with manufacturing losing 12k while services-producing sectors lost 61k jobs with private education and healthcare losing 36k. Financial activities were a bright spot as they added 10k jobs. The numbers are skewed to the downside, negative revisions to prior months as well, due to strikes and bad weather and those jobs will come back next month, but this report seems to be weak even without those factors.
The yield on a 10y Treasury started the week at 3.95%, rose to 4.17% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 3.39%, rose to 3.62% and finished the week at around 3.56%. Spread between 2y and 10y Treasuries started the week at 57bp and finished the week at 59bp. FedWatchTool sees the probability of a 25bp rate cut at March meeting at around 3% while probability of no change is at around 97%. Gold breached $5400 and oil climbed above $74 on Monday as a result of attack on Iran with oil finishing the week at around $92 gaining almost 35% w/w. BTCUSD plunged below $63k and then bounced back to finish the week at around $67k.
This week we will have both inflation measures, CPI and PCE as well as second reading of Q4 GDP.
Important news for USD:
Wednesday:
CPI
Friday:
GDP
PCE
EUR
Final manufacturing PMI for the month of February was unchanged at 50.8 but both Germany and France saw their readings revised up. Former is important as Germany is the engine of Europe and they returned to expansion for the first time since June of 2022, latter is important as it shows that French manufacturing sector is still in expansion, albeit with a weak 50.1 print. The biggest concern is that input prices continued to increase and they have now even increased the pace raising worries about inflation pressures. Final services were revised up to 51.9 from 51.8 as preliminary reported mainly due to tick up in German reading. The report shows that business optimism and new orders improved which a welcoming sign but prices paid index rose as well and coupled with already present freeze in hiring it casts a shadow on rebound in economy. Composite was unchanged at 51.9.
ECB Chief Economist Philip Lane warned that prolonged US – Iran conflict could lead to shortage of oil supply, thus lifting energy prices and in turn lifting inflation. Qatar is halting its LNG production which will push prices up. He added that this could also lead to a “sharp drop in the output” for the Euro area. Monetary policy is still in good place while markets are pricing out chances of a rate cut by the year end. ECB policymaker Villeroy stated that he does not see a case for rising rates echoing Lane’s message of potentially higher inflation and lower growth due to the war in Middle East. ECB Vice President de Guindos stated that bank’s central scenario is that US – Iran war will be a short one. ECB policymaker Sleijpen reiterated that monetary policy is in a good place and clarified that they are prepared to tolerate small inflation overshoot, referring to the increase in inflation due to the spike in oil prices.
February inflation print surprised to the upside with headline CPI printing 1.9% y/y vs 1.7% y/y as expected and in January while core CPI showed 2.4% y/y vs 2.2% y/y as expected and as was the previous month. Increases in prices were seen in both goods and services. Prices started to rise even before the US – Iran conflict began and now with surging energy prices we can see higher inflation print in the coming months which will nudge ECB towards talks about rate hikes rather than rate cuts. Final Q4 GDP was revised down to 0.2% q/q and 1.2%y/y from 0.3% q/q and 1.3% y/y as preliminary reported. Household consumption was the biggest contributor with 0.2pp while net trade subtracted 0.1pp from the reading.
GBP
February final manufacturing reading was revised down to 51.7 from 52 but still a tick up from 51.6 in January. The report shows a surge in new orders which rose at a fastest pace in almost four and-a-half years! Outlook for the sector remains positive according to participants, but employment situation is still dire and is holding index back from reaching much higher. Final services were unchanged at healthy 53.9, but composite was revised down to 53.7 from 53.9 as preliminary reported. The report notes that new orders growth is losing momentum which is a cause for concern for the services sector.
AUD
RBA Governor Bullock warned about potential upside pressures on inflation due to issues with oil supply caused by US attack on Iran. She added that their main goal is to bring inflation back to targeted range and that board is not certain that current financial conditions are sufficiently restrictive to achieve their goal, thus indicating further rate hikes to come. Bullock clarified that all board meetings will be live, meaning that they will include active discussion about rate hikes, and added that wide range of data show that labor market remains tight.
Q4 GDP data showed growth of 0.8% q/q vs 0.6% q/q as expected and up from upwardly revised 0.5% q/q growth in the previous quarter. The economy grew 2.6% y/y vs 2.2% y/y as expected and up from 2.1% y/y in Q3. Government consumption grew by 0.9% and added 0.2pp to the reading while household consumption grew by 0.3%, slower than 0.5% in Q3, and added 0.1pp to GDP. Net trade subtracted 0.1pp from the reading as imports rose faster than exports (1.8% and 1.4% respectively).
Official Chinese PMI data for the month of February showed manufacturing slumping further into contraction with a 49 print vs 49.2 as expected. Details show weakness across the subindices as production index dipped into contraction after three months in expansion while new orders, new export orders and employment fell deeper into contraction. Non-manufacturing PMI ticked up to 49.5 from 49.4 in January but but new orders and new export orders slipped in February. Composite printed 49.5, down from 49.8 the previous month. On the other hand, RatingDog measures of economy surged. Their manufacturing PMI printed 52.1 as external demand remains strong. Their services PMI fared even better as it surged to 56.7, highest since May of 2023, from 52.3 the previous month and lifted composite to very healthy 55.4 from 51.6 in January.
Two Sessions started with China’s 2026 growth target set between 4.5-5%, a bit weaker than previous “around 5%” target. The plan shows that main focus will be on improving industrial modernization, improving technological self-reliance, and increasing domestic demand. Inflation is targeted at around 2% and urban unemployment rate at around 5.5% are unchanged from previous years. Fiscal deficit will stay at around 4% of GDP.
This week we will have inflation data from China.
Important news for AUD:
Monday:
CPI (China)
NZD
Q4 terms of trade surged printing improvement of 3.7% q/q after a decline of 2.1% q/q in the previous quarter and smashing expectations of a 0.7% q/q decline. The improvement was made by export prices rising more than import price increases.
CAD
CAD has managed to gain strength due to surging oil prices. Biggest gains were recorded against heavy oil importing countries such as Japan and European Union. Gains against commodity currencies (AUD and NZD) as well as GBP and CHF were good while USDCAD was basically flat on the week and then CAD managed to gain after the weak NFP report.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Reuters has reported that the US – Iran conflict will make BoJ delay March rate hike. Potential disruption in oil supply would lead to higher energy prices and have a negative impact on the economy and higher rates would only exacerbate that negative impact. Kyodo news has reported that Japanese government considers releasing national oil reserves to help with surging oil prices and disruption in oil transfer through Straight of Hormuz.
This week we will have final Q4 GDP print.
Important news for JPY:
Tuesday:
GDP
CHF
SNB total sight deposits rose for the second straight week as they printed CHF459.8bn for the week ending February 27 vs CHF457.6bn the previous week. SNB has intervened in the markets on Monday to prevent excessive Swissy strengthening post invasion on Iran and CHF lost about 100 pips against all of the majors. February inflation data saw headline number unchanged at 0.1% y/y while markets were bracing for a deflationary -0.1% y/y print. Core reading, however, ticked down to 0.4% y/y from 0.5% y/y in January.
