Lets March on

It was a better end to a month that saw most of the gains for the year for US stocks given back during February. Friday was a bumper day for US economic data; US markets took a slight wobble after the free and frank exchange of views that the world witnessed with unease earlier in the day at the Oval Office. Stocks in the US finished on a strong note at the end of the month. A decline in 2-year treasury yields over the past five days suggests the treasury market may be becoming slightly more hopeful that the recent economic data will encourage the Fed to cut again sooner rather than later. Two-year US treasury yields finished the week just over 4%.

Several data releases further evidence that the US economy is slowing. Consumer confidence continues to wane, housing data looks gloomy, and jobless claims have jumped significantly. The US GDP estimates for the first quarter of 2025 will likely be revised lower. On the inflation front, the latest release of the Personal Consumption and Expenditure Index (PCE) shows prices increased 0.3% in January and are up 2.5% in the past year, close to the 2.6% increase in the year ending January 2024. This indicates that the Fed made virtually no progress in the inflation fight over the past year, although the report was no worse than expected. Yields across the US treasury curve have fallen in the past month, as the Citi economic surprise index continues to fall. Sentiment for stocks has turned more cautious, but there appears to be limited indication of investors wanting to leave the ship at present.

Looking to the week ahead, the monthly PMI surveys will be of most significant importance. There was good news from the world’s second-largest economy this morning: the Caixin China General Manufacturing PMI rose to 50.8 in February 2025 from 50.1 in the previous month, surpassing market expectations of 50.3. China’s official NBS Manufacturing PMI rose to 50.2 in February 2025 from 49.1 in the prior month, indicating manufacturing is expanding.

The release of the monthly US jobs report, including non-farm payroll data, will provide further evidence of the strength of the US labour market. The US flash PMIS reported a renewed weakening of the service sector expansion, accompanied by a drop in employment. This week’s other notable event is the monthly ECB meeting, followed by a press conference on Thursday. The market anticipates another 25 basis point cut, possibly slightly subject to the euro area inflation data coming out later today. As for the UK, aside from the PMI, there is little to get excited about this week. Helped by a decent finish on Friday, along with the positive PMI China data, stocks in Europe appear to be starting the month on a positive note.