Daily Market Outlook, March 1, 2023

China Growth At Decade Highs, Hang Seng Surges

Overnight data from China confirmed the re-opening narrative is alive and well, with Chinese PMI’s registering the largest expansion in over a decade, Chineses equities surged with the growth sensitive HangSeng in the green by almost 5%. The robust data out of China was countered by less favourable data out of Australia with soggy growth and CPI releases weighing on the ASX200. The upbeat Asian session has seen US equity futures reverse the final day of February’s declines, with European bourses also set to open the new month on a positive footing.

Bank of England consumer finance data for January will reveal the extent of the slowdown in the UK housing landscape. From the highs of August, mortgage approvals have taken a 50% haircut into December and markets expect further declines in January. Data for other consumer credit will show whether households are relying on credit to manage the cost-of-living inflation. Bank of England Governor Bailey speaks this morning, his remarks will be parsed for any indication of a pushback against rising interest rate expectations. Markets are now pricing a further 75 basis points of interest rate rises despite the subtle suggestions at the BoE’s last policy update that rates may have reached their terminal rate for this cycle.

In today’s European session markets await February manufacturing PMI data in the UK and the Eurozone, these releases are second look, although there will be fresh information on some constituent Eurozone economies. The first estimates for both remained anchored below the pivotal 50 level signalling contraction but the output indices finally surfaced above 50 indicating nascent signs that activity in the sector may have bottomed out. German February CPI data will give some clues on the likely level for tomorrow’s harmonised inflation rate for the Euro Area as a whole. Data yesterday for Spain and France both showed renewed increases in annual inflation rates in relation to January as rises in other prices offset falls in energy prices. However, market watchers expect German inflation to have retreated last month and that remains the favoured outcome for the Euro Area print as well.

Stateside in the US January economic data generally surprised on the upside leading to a rapid repricing in terminal rate expectation for US rates. The debate amongst market watchers is the extent to which this bump in activity data was due to milder than usual weather and so February releases are expected to give a cleaner read on the underlying nature of activity in the US. Today’s ISM manufacturing metrics and its services counterpart on Friday will be among the first of these February readings and so they are likely to be parsed particularly closely by investors, with consensus coalescing around a continued sub 50 contractionary prints.

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