US DATA: Durable Goods Another Strong "Hard" Data Point For Manufacturing
Mar-26 12:56
Headline durable goods orders greatly exceeded expectations with growth of 0.9% M/M in February (-1.0% expected, 3.3% prior upwardly rev by 0.1pp). Ex-transportation orders also impressed, at 0.7% M/M (0.2% expected, 0.1% prior upwardly rev by 0.1pp).
- Core capital goods orders - nondefence and excluding aircraft - were on the other hand disappointing, contracting 0.3% M/M (+0.2% expected, 0.9% prior upwardly rev by 0.1pp).We tend to put more emphasis on the latter as aircraft orders tend to be extremely volatile month-to-month.
- But the strong headline/ex-transport orders are notable. And the February pullback in core, while a 7-month low, largely reflected a payback from January's 17-month fastest pace of growth.
- And even then, multi-month metrics are a better signal than the month-to-month, and they appear solid: core orders were up 5.0% 3M/3M SA annualized for a second month.
- That's the strongest pace of growth on that basis since mid-2022 and reflective of other "hard" data suggesting that manufacturing/industrial production has been strong in the early part of the year.
- This of course could be related to orders front-running the impact of tariffs, and with "soft" indicators of sentiment turning sharply negative in the last couple of months it could mean we will see a dropoff in demand later in the year that may already be reflected in slower core orders in February.
- For the moment though it's still a sign that Q1 will overall be one of the strongest quarters in the last couple of years for manufacturing, and should portend solidity in business investment.
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EUROPEAN INFLATION: Services Inflation Pressures Remain Elevated
Feb-24 12:50
Eurozone services prices fell 0.14% M/M, a touch below January 2024’s -0.09% reading, but still above the 1997-2024 average of -0.33%. Excluding the volatile package holidays and airfares subcomponents, we estimate services inflation at 3.88% Y/Y (vs 3.76% prior). As such, services inflation pressures remain elevated, and will be a key focus of the February flash inflation round which begins on Thursday. Last week, ECB Executive Board member Schnabel said she expects services inflation to start decelerating from February.
- Several services components tend to see start-of-year price increases in January (the so-called January effect). Looking in detail at these items, it was a bit of a mixed bag:
- Insurance prices, which have been highlighted as important to watch by ECB officials in recent weeks, rose 2.15% M/M, below last year’s 4.11%. This helped annual insurance inflation ease to 8.04% Y/Y (vs 10.12% prior).
- Education inflation also eased a touch to 3.97% Y/Y (vs 4.09% prior).
- However, health services inflation accelerated to 3.41% Y/Y (vs 3.18% prior), particularly driven by hospital services. Postal services also accelerated to 6.84% Y/Y (vs 4.53% prior), though this component has only a small weight in the basket overall.
- Elsewhere, restaurant and hotel inflation (which generally sees a negative monthly reading in January) decelerated to 4.17% Y/Y (vs 4.56% prior), driven largely by catering services.
- Recreation and culture inflation accelerated to 2.80% Y/Y (vs 2.47% prior), but this was solely due to the volatile package holidays component (8.77% Y/Y vs 7.80% prior).
- Finally, transport services inflation decelerated to 3.96% Y/Y (vs 4.25% prior), with prices falling 5.07% on a monthly basis. This was largely driven by the volatile airfares component (4.86% Y/Y vs 7.65% prior).
- On a seasonally adjusted basis using ECB data, Eurozone services inflation rose 0.30% M/M in January, a 7bp downward revision from the flash release. Services inflation momentum was 2.51% 3m/3m, slightly above the 2.45% flash release but still below December’s 2.71%.
BOE: Dhingra reappointed for further 3 years on the MPC
Feb-24 12:13
- Dr Swati Dhingra has seen her term as an external MPC member extended by the standard 3 years to 8 August 2028. This was generally expected (most external members do renew their terms) but it's never certain until the confirmation. Her first term had been due to end in August this year. External MPC members can serve two 3-year terms.
- Given that she is one of (if not) the most dovish MPC members, it reduces the tail risk that she would be replaced by a more hawkish member and shift the balance of the MPC through H2-25.
US TSYS: Scaling Back Friday Highs, Lat Week PCE, GDP Data Focus
Feb-24 12:09
- Treasuries are trading moderately weaker, low end of narrow range as rates scale back a small portion of Friday's risk-off & data-driven rally.
- Treasury March'25 10Y futures are currently -5.5 at 109-16.5 (109-16L/109-21H), inside technical levels: initial resistance above at 109-24/110-00 (High Feb 21 / 7 and the bull trigger), support well below at 108-21.5 (Low Feb 19). 10Y yield +.0058 at 4.4371%, curves flatter: 2s10s -1.134 at 21.770, 5s30s -.378 at 40.051.
- Heavier volume despite Japan out on extended holiday weekend, ongoing quarterly futures roll from Mar'25 to Jun'25 (June takes lead this Friday), helps push TYH5 to 420k so far.
- Limited data today with regional Fed reporting (prior, est): Chicago Fed Nat Activity Index (0.15, -0.05) at 0830ET, Dallas Fed Mfg Activity (14.1, 6.4) at 1030ET. No scheduled Fed speakers.
- The upcoming US economic calendar is backloaded, with the second release for Q4 national accounts on Thursday before the January PCE report on Friday. Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3.
- US Treasury auctions resume $76B 13W & $68B 26W bill auctions at 1130ET, $69B 2Y Note auction (91282CMP3) at 1300ET.
- Cross asset update: Crude mildly higher (WTI +.08 at 70.48; Gold climbing 12.72 at 2948.75; Bbg US$ index little lower at 1285.86 (-.037).
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