Equity markets rallied last week, driven by solid economic data from China and accommodating remarks from Fed officials.

Bond yields rose slightly, with the US 10-year yield around 4% and the German equivalent close to 2.70%.

US manufacturing activity continued to lose traction in February. The ISM manufacturing PMI rose to 47.7 last month, up from 47.4 in January but below the forecast of 48. However, the ISM prices index rose to 51.3 from 44.5 in January, the highest reading since September. The services PMI slowed slightly in February to 55.1, down from 55.2 in January, although the figure beat forecasts (54.5).

The labour market remains healthy, as evidenced by the fact that initial jobless claims for the week ending 25 February came in at 190,000, below the forecast of 195,000.

Across Europe, inflation in France edged up to 7.2% year-on-year last month (from 7% in January) on the back of higher food and services prices. Month-on-month inflation was 1%, up from 0.4% in January. In Germany, inflation also accelerated to 9.3% in February, above the 9% forecast. These data prints increase the likelihood of further rate hikes by the ECB.

In China, service sector activity expanded at the fastest pace in six months in February as the lifting of pandemic measures in December boosted demand and led to employment growth. As a result, the Caixin services PMI came in at 55.0 last month, up from 52.9 in January.

In this mood, the S&P 500 ended the week up 1.90%, while the tech-heavy Nasdaq, which is more sensitive to interest rate expectations, rose 2.58%. The Stoxx 600 Europe was up 1.40%.

Volatility is likely to remain a factor in the coming weeks as the quarterly corporate earnings season draws to a close and the ECB and Fed decisions at the end of the month draw nearer.

Source: Bonhôte

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