USA
• Markit’s flash composite PMI signaled a further recovery from January’s Omicron-induced slowdown. The headline index came in at 58.5 in March, up from 55.9 the month before and its highest mark since July. The manufacturing sector tracker jumped from 57.3 to 58.5 as output benefited from healthy job creation and less severe supply chain disruptions. In this regard, lead times lengthened at the slowest pace since January 2021. New orders, meanwhile, accumulated at the swiftest pace since September. Declining COVID-19 caseloads had positive repercussions on the services sector, too. Indeed, the non-manufacturing PMI sprang from 56.5 to 58.9 as new orders piled up at the fastest rate since June and job creation quickened to an eleven-month high. Stronger demand conditions in the services sector translated into the sharpest accumulation of outstanding business on record. Inflationary pressures remained acute, with input/output costs rising at near-record rates
• New-home sales fell for the second month in a row in February, slipping 2.0% MoM to 772K (seasonally adjusted and annualized). This retreat, together with a rise in the number of homes available on the market (from 398K to 407K), pushed the inventory-to-sales ratio up from 6.1 to 6.3, indicating a roughly balanced market. The median transaction price, meanwhile, slipped 6.3% MoM to $400,600. On a 12-month basis, it was up 10.7%. After the buying frenzy of the past two years, the new-homes market seems to be stabilizing at a level roughly in line with where it was before the pandemic. While high prices could continue to dampen buyer enthusiasm going forward, rising inventories might alleviate some of the pressure. In this regard, there were more new homes available on the market in February than at any time since August 2008. What’s more, a lot more are on the way judging from the number of single-family homes currently under construction in the United States
• Durable goods orders sank 2.2% in February, considerably more than expected by analysts (-0.6%). Orders in the transportation category fell 5.6% on a steep decrease for civilian aircraft (-30.4%). Bookings in the vehicles/parts segment, meanwhile, cooled for the second month running, slipping 0.5% MoM. Excluding transportation, orders slid 0.6%, marking the first monthly decline in 12 months for this indicator. The report showed, also, that orders of non-defence capital goods excluding aircraft, a proxy for future capital spending, decreased 0.9% in the month but remained up 6.5% on a three-month annualized basis. This suggests that business investment in machine/equipment has further room to improve in the first half of the year
• Initial jobless claims plunged from 215K to a 53-year low of 187K in the week to March 19. Continued claims, for their part, slipped from 1,417K to 1,350K. This was the lowest level recorded since February 1970. Such low levels of claims reflect the extraordinary strength of the labour market at the present time
• Fed Chair Jerome Powell vowed tough action on inflation, which he said jeopardizes an otherwise strong economic recovery. On Monday Powell echoed a Federal Open Market Committee post-meeting statement, reiterating that interest rate hikes would continue until inflation is under control. If necessary, he said, the increases could be even higher than the quarter-percentage-point move approved at the meeting. Powell also addressed the Russian invasion of Ukraine, saying it is adding to supply chain and inflation pressures. Under normal circumstances, the Fed would generally look through those types of events and not alter policy, he said, but with the outcome unclear, policymakers must stay on the alert
• The US Securities and Exchange Commission on Monday debuted expansive rules that are aimed at protecting investors by requiring publicly traded companies to disclose how climate risks affect their business, outline their own greenhouse gas emissions and report on climate-related targets and goals
• The major benchmarks ended mostly higher, with the large-cap S&P 500 Index reaching its highest level since February 10 on Friday. Information technology stocks outperformed, helped by gains in Apple following news of analyst expectations for strong sales of the iPhone 13. A continued rise in many commodity prices boosted the energy and materials sectors, while health care shares underperformed, dragged lower in part by a decline in drug giant Pfizer. Market activity was generally subdued but that there was a notable “buy on the close” trend through much of the week. Bloomberg reported Monday that the S&P 500 had gained one-third of one percent in the last hour of trading for five consecutive days—the longest streak in two decades
• In terms of data release, personal income & spending is out on Thursday. Household income growth flatlined in January as the ongoing strength in wage & salary gains was offset by a decline in fiscal transfers as the monthly child tax credits ended. With the major temporary income support programs wound down, income growth is expected bounce back 0.5% in February, driven by more workers collecting paychecks. That, however, is unlikely to be enough to bring real income growth back into positive territory, as PCE inflation rose an estimated 0.6% in February
• Employment data is out on Friday. Job growth has been surprisingly strong and steady in recent months, with nonfarm payrolls growing an average of 582K the past three months. The resilient pace of hiring has been facilitated by workers flowing back into the labor force, as constraints around COVID have eased and financial needs have risen. Payroll growth is expected to have moderated to around 450K in March, however. Seasonal factors look less supportive of headline job growth compared to January, while the bounce back from Omicron-hiring delays was likely confined to February. More generally, labor demand does not appear to be rising as rapidly as last year, with hiring plans among small businesses falling to a one-year low in February
UK
• Headline PMI numbers out are broadly positive, given the turbulent macroeconomic backdrop. The Markit/CIPS composite PMI reached 59.7 in March, down just 0.2pp from February but ahead of consensus of 57.8, while services PMI increased to 61, up from 60.5, and well above consensus of 58. Manufacturing PMI performed worst of the all the readings, falling to 55.5, down from 58. Service sector activity increased at a steep and accelerated pace in March thanks to the removal of covid-19 restrictions as well as reports of a return to the office and customer events boosting business activity. March data also highlighted a robust rise in services sector employment. The picture is somewhat less positive in the manufacturing sector. While pressure on manufacturing supply chains is still easing, survey respondents continue to note raw materials’ shortages, staff absences and shipping delays holding back production growth. Manufacturers also report concerns that the Ukraine war could lead to renewed shortages and fragile supply chains in the months ahead
• Headline retail sales figures for February do not make for particularly encouraging reading. Sales fell by 0.3% MoM and were up 7% YoY, which was well below consensus expectations of +7.8%. Stormy weather during the month had some impact on retail sales, but the weak figures are being interpreted as a sign of the upcoming cost of living squeeze taking the momentum out of the economic recovery. One positive message to come from the latest figures is that worries around COVID-19 seem to be having less of an impact on consumer behavior. The proportion of on-line retail sales fell to 27.8% in February 2022, its lowest since March 2020 (22.7%), continuing a broad downward trend since its peak in February 2021 (37.7%). Consumer confidence has also taken a knock in March: GfK’s composite index of consumers’ confidence fell to -31 in March, from -26 in February, slightly below consensus. This suggests that consumers are likely to be hesitant about deploying their excess savings accumulated during the pandemic in the immediate term. Declining consumer confidence comes on the back of news that business confidence has also taken a hit due to worries around inflation and the broader potential fallout from the Russian invasion of Ukraine. It now seems likely that GDP growth QoQ for Q2 2022, will enter into negative territory
• UK Chancellor of the Exchequer Rishi Sunak unveiled a mini budget that preserved most of a GBP 50 billion public finances windfall and erred on the side of caution—in light of the worsening economic outlook and the prospect of higher debt repayments. Sunak announced modest cuts in fuel duty and national insurance contributions and preannounced a reduction in the basic income tax rate in 2024, when a general election is likely to be held
EU
• The Eurozone flash Composite PMI fell less than expected to 54.5 in March, compared with 55.5 in the previous month. The Manufacturing PMI was 57, beating expectations, compared with 58.2 the month before, and the Services PMI was 54.8 compared with 55.5, and was also above expectations. Both Germany and France saw surprisingly resilient increases in the pace of economic activity. Momentum in France continued, although while services continued to expand at a higher pace, manufacturing activity decelerated. In Germany, the deceleration in manufacturing activity was more pronounced, but the level was still above expectations, albeit overshadowed by increased inflationary pressure on both input and output prices. The March release indicates an intensification of factors that were preventing growth before Russia’s invasion of Ukraine, but have been accentuated since. An overall measure of supply chain pressures, combining supply delivery times and input prices, bucked a previously declining trend and increased this month. Input and output price responses are far outside of their historical range and are growing. And even though headline outcomes deteriorated less than expected, expectations of future activity fell significantly across the board in the Eurozone. Export orders also declined, suggesting lower global demand in the manufacturing sector
• Inflationary pressures are clearly rising fast from already high levels, but signs of significant deterioration in future activity create a difficult trade-off. Uncertainty around the economic outlook means the ECB will struggle to commit to a more hawkish rate path for fear of tightening in a downturn, yet there will likely be a strong push from some (until now a minority) within the Governing Council to act quickly and resolutely. And given the nature of the inflationary shock, being largely supply-driven, it is unclear how efficient such a policy tightening would be. Yet for now, the ECB is still likely to emphasize inflation over growth unless future data releases show otherwise
• Shares in Europe weakened amid the ongoing Russian invasion of Ukraine and the prospect of tighter monetary policy. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.23% lower. The main market indexes were mixed. Germany’s Xetra DAX Index eased 0.74%, while France’s CAC 40 Index lost 1.01%. Italy’s FTSE MIB Index gained 1.39%
CHINA
• Concerns about the fate of dual-listed Chinese stocks continued to dampen sentiment. Chinese regulators instructed some of the country’s U.S.-listed companies to prepare audit documents for the 2021 financial year, Reuters reported, citing unnamed sources. The companies reportedly included China’s top search engine Baidu, e-commerce platforms Alibaba and JD.com, and social media company Weibo. News of the Chinese regulators’ instruction to dual-listed companies appeared to signal some willingness by Beijing to capitulate to Washington’s demands to resolve a longstanding standoff over auditing standards
• It remained unclear if the talks between regulators on both sides would materialize into anything concrete. The uncertainty was underscored Thursday, when the U.S. audit watchdog said that it was still meeting with its Chinese counterparts and called speculation about an agreement “premature.” In a statement, the Public Company Accounting Oversight Board added that it “remains unclear” whether China would permit U.S. regulators to review the audits of U.S.-listed Chinese companies. For years, the U.S. has demanded access to the books of U.S.-listed companies, but Beijing has refused to give access to corporate audits citing national security reasons. Earlier in March, the U.S. Securities and Exchange Commission (SEC) named five Chinese companies that could face delisting under the Holding Foreign Companies Accountable Act, a law that compels the SEC to delist stocks of companies if U.S. regulators can’t review their audits for three straight years
• Chinese markets fell amid delisting fears for U.S.-listed Chinese companies arising from a simmering bilateral dispute over auditing standards. For the week, the large-cap CSI 300 Index fell 2.1% and the Shanghai Composite Index shed 1.2%, according to Reuters
Sources: T. Rowe Price, MFS Investment Management, Handelsbank Capital Markets, Wells Fargo, National Bank of Canada, M. Cassar Derjavets