Daily Market Outlook, February 22, 2023

Stocks Suffer From PMI Strength

Asian Equities retreated overnight, following US markets lower. Growth and inflation expectations increased following a robust round of PMI data. PMI prints from western economies provided a more optimistic outlook for growth, however, the inflation read was more ambiguous with supply chain disruptions easing but service sector inflation remaining elevated.

The data docket in the European session is scant today, investors will eye German IFO business survey which markets expect to deliver further signs of improving conditions. Yesterday’s Eurozone flash PMI rose to a nine-month high led by service sector activity, impressively the manufacturing read also signalled a return to growth, aided by indications of further reductions in supply chain constraints. Expect today’s headline IFO index to rise to 91.5 from 90.2, supported by incremental improvements in current conditions and expectations, this would be a fifth consecutive uptick to the best levels since midsummer of 2022

The Federal Market Open Committee will release the minutes of its February policy meeting this evening, the minutes, however, may now be a little stale given subsequent robust US data releases and predominantly hawkish rhetoric from policymakers. Nevertheless, these recent data releases reinforce the hawkish mantra that is likely to come out of the minutes that a policy ‘pivot’ remains a stretch target, as markets have repriced, believing the Fed will raise rates by a further 75bp by the summer and investors have abandoned the notion of rate cuts later this year..

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