Macro Matters – Weekly review, w/c March 4

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• Stocks mark time before breaking to new record highs

• PCE data inline, markets relieved

• PMI data solid for China, Europe, and UK, mixed for US

• Fed speakers stay cautious, Powell to testify this week

• US February Employment report in the spotlight this week

Stocks Mark Time Before Breaking to New Record Highs

Major indices closed the week at record highs, with the Nasdaq Composite setting a new all-time peak, joining the Dow Jones and S&P 500 in the current rally. Year-to-date, the S&P 500 is up 6.8%, while the Dow has gained 3.5%. Technology and growth sectors were key drivers of the gains, reflecting investor optimism around supportive economic data and potential monetary easing.

PCE Data Inline, Markets Relieved

The January Personal Consumption Expenditures (PCE) report matched expectations, easing market concerns about inflation. Core PCE rose 0.4% month-over-month and 2.8% year-over-year, while headline PCE increased 0.3% and 2.4% respectively. These figures, slightly above the Fed’s 2% inflation target, suggest moderation in price pressures. Despite a rise in personal income, spending declined, highlighting shifting consumer preferences toward services over goods.

PMI Data Solid for China, Europe, and UK, Mixed for US

• China: Official manufacturing PMI stayed contractionary at 49.1, but the Caixin PMI signaled expansion at 50.9, boosting market optimism.

• Europe: The HCOB Manufacturing PMI dipped slightly to 46.5, reflecting a slower contraction. Forward indicators like new orders showed signs of recovery.

• UK: The manufacturing PMI hit a 10-month high of 47.5 but remained contractionary. Supply chain disruptions and weak demand continue to weigh.

• US: The ISM Manufacturing PMI fell to 47.8, marking the fourth consecutive month below 50, pointing to ongoing challenges in the sector.

Fed Speakers Stay Cautious, Powell to Testify This Week

Fed officials, including Governor Michelle Bowman, reiterated a cautious approach to rate adjustments, citing the need for sustained inflation reductions. Bowman supported holding rates steady at 5.25%-5.50%, emphasizing the risks of premature cuts. Chair Jerome Powell is expected to echo this sentiment in his testimony before Congress on Wednesday and Thursday, highlighting the Fed’s data-driven approach and the importance of inflation containment.

US February Employment Report in the Spotlight This Week

Friday’s employment report is expected to show a slowdown in job creation, with forecasts of 200,000 nonfarm payroll additions, down from 350,000 in January. Average Hourly Earnings are projected to dip slightly, while the unemployment rate is expected to remain steady at 3.7%. The ADP private payrolls report and JOLTS data earlier in the week will offer preliminary insights into labor market trends.

What’s Ahead

Central Bank Watch:

• Wednesday: Bank of Canada interest rate decision.

• Thursday: ECB interest rate decision, statement, and press conference.

• Wednesday/Thursday: Fed Chair Powell testifies before Congress.

Macro Data Watch:

• 03/05/2024: Global Services PMI, Tokyo CPI, EU PPI.

• 03/06/2024: Australia GDP, EU Retail Sales, US ADP Employment Change.

• 03/07/2024: China Trade Balance, ECB decision.

• 03/08/2024: German PPI, EU GDP, US and Canada Employment Reports.

This week’s events, including Powell’s testimony and the employment report, will shape market expectations around the Fed’s policy trajectory, offering critical insights into economic and inflation dynamics.

‍