Financial Markets Look for Guidance, Why Does Tuesday’s PMI Matter?

The US dollar has reclaimed 99.00 on expectation of strong US Services PMI on Tuesday. A preliminary estimate for the US Services PMI is 58 against the prior print of 56.5.

Nearly 80% of the US economy revolves around services, which heightens attention around the US ISM services PMI as a proxy for economic growth in the United States. The non-manufacturing gauge of activity is expected to show accelerating momentum in March, with the headline reading due in at 58.4 from 56.5.

This would be welcomed news for 1Q and particularly the US GDP estimates, which are currently hovering around +1.5% annualized. If the data meets expectations, this will help keep Fed rate hike odds pointing higher, which have been supportive of a stronger US Dollar.

Financial markets’ focus on Tuesday will be on the global services sector. On home shores, IHS Markit´s services sector Purchasing Managers’ Index is expected to dip to 60.8 in March versus a preliminary reading of 61.0. Also due out in the UK are new car registration figures for the same month.

A PMI for Eurozone services meanwhile is expected to print at 54.8, the same as the ‘flash’ result, while in the US the analogous PMI from the ISM institute is seen improving from its February level of 56.5 to 58.6. Down Under, rate-setters in Sydney will meet to decide on monetary policy. Expectations are that the Reserve Bank of Australia will keep its cash rate unchanged.

Seven Fed Speakers around the release of the Fed Minutes on Wednesday afternoon but now markets are mostly wondering if the rate hikes will be 0.25% or 0.5% and the rest is getting baked in. ISM and PMI on Tuesday and really no other significant data is coming in, nor do financial markets have many companies reporting earnings.

Earnings Reports are mostly from companies who count December as the first month of their year and markets still await the new data for guidance at this point.

Next week is a very different story as we have CPI and PPI, Retail Sales and Consumer Sentiment – all market-moving reports and the Banks start reporting on Thursday next week but then Friday is Good Friday and financial markets are closed but make sure you are well-rested on the 18th as earnings and data will surely be hitting the fan then.

In Europe, financial markets are seeing inflation at 7.5% for March, up from 5.9% in February, led by a 11.7% rise in Energy Costs that is not looking like it is going away any time soon as the war rages on in Ukraine. The repercussions of war will be felt all year; even if it stops now as crops have not been planted and supply chains have been further interrupted and these things are likely to get worse before and if they get any better. Also getting worse is the drought in California as snowpack this year is at 39% of average and that’s the worst level in 1,200 years – so pretty bad. According to Dr. Schwartz, who wrote the report:

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.