US ISM Services PMI fell from 52.6 to 51.4 in March, below expectation of 52.8. Business activity/production ticked up from 57.2 to 57.4. New orders fell from 56.1 to 54.4. Employment rose slightly from 48.0 to 48.5. Prices fell sharply from 58.6 to 53.4.
ISM said: “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for March (51.4 percent) corresponds to a 0.8-percent increase in real gross domestic product (GDP) on an annualized basis.”
In a CNBC interview today, Atlanta Fed President suggested that rate cuts could be on the horizon by the end of 2024, contingent on the economy’s performance. Bostic outlined a scenario where “continued robustness in GDP, unemployment, and a slow decline of inflation through the course of the year” could warrant a policy adjustment in the fourth quarter.
He also acknowledged the persistence of inflationary pressure into the current year, “hasn’t moved very much relative to” levels observed at the end of 2023. “There are some secondary measures in the inflation numbers that have gotten me a bit concerned that things may move even slower,” he warned.
“Those are much higher now than they were before and they’re starting to trend back to what we saw in the high inflation period,” Bostic added. “They’re moving away from what we’d like to see. So I’ve got to make sure that those aren’t hiding some extra upward pressure and pricing pressure before I’m going to want to move our policy rate.”
US ADP private employment grew 184k in March, above expectation of 150k. By sector, goods-producing jobs increased 42k while service-providing jobs increased 142k. By establishment size, small companies added 16k jobs, medium companies added 93k, large companies added 87k.
For job-stayers, year-over-year pay gains was unchanged at 5.1%. Annual pay growth for job changes accelerated sharply from 7.6% to 10.0%.
Nela Richardson, Chief Economist at ADP, said: “March was surprising not just for the pay gains, but the sectors that recorded them. The three biggest increases for job-changers were in construction, financial services, and manufacturing. Inflation has been cooling, but our data shows pay is heating up in both goods and services.”
Eurozone headline CPI slowed from 2.6% yoy to 2.4% yoy in March, below expectation of 2.5% yoy. CPI core (ex energy, food, alcohol & tobacco) slowed from 3.1% yoy to 2.9% yoy, below expectation of 3.0% yoy.
Looking at the main components services is expected to have the highest annual rate in March (4.0%, stable compared with February), followed by food, alcohol & tobacco (2.7%, down from 3.9%), non-energy industrial goods (1.1%, down from 1.6%) and energy (-1.8%, up from -3.7%).
In an interview with Reuters, ECB Governing Council member Robert Holzmann said that an interest rate cut in April is “not on my radar”. Instead, he highlighted June as a critical time for evaluating the bank’s next steps, emphasizing a commitment to data-driven decision-making regarding monetary easing.
“If the data allows it, a decision will be made,” he noted. “I don’t have an in-principle objection to easing in June, but I’d like to see the data first and I want to stay data-dependent.”
An intriguing aspect of Holzmann’s perspective is his consideration of Fed’s actions in relation to ECB’s. He mentioned, “If by June the data supports a strong case for a cut, and we’re a week before the Fed makes its decision, then it’s quite likely we’ll proceed, hoping the Fed follows suit.” However, if Fed doesn’t come along, “then it may reduce the economic impact of our move.”
Notably, Holzmann’s remarks signal a significant shift, especially considering his reputation as one of the more conservative voices within ECB, typically resistant to premature discussions of rate reductions. For him, the shift appears to be influenced by an increasingly benign inflation outlook. Also there were signs of economic fragility within Eurozone, which has been hovering on the brink of recession for multiple quarters.
China’s Caixin PMI Services edged up slightly from 52.5 to 52.7 in March, matched expectations. PMI Composite, which tracks both manufacturing and service sectors, also increased from 52.5 to 52.7, indicating the most pronounced expansion of overall business activity since May 2023.
Wang Zhe, Senior Economist at Caixin Insight Group, highlighted the favorable economic performance in the early months of the year and the manufacturing sector’s five-month run in expansionary territory. He stated, “This indicates a generally stable and positive economic recovery”.
Despite these optimistic signs, the economist pointed out several challenges facing the Chinese economy. Wang Zhe identified persistent downward economic pressures, subdued employment levels, low prices, and insufficient effective demand as critical issues that have yet to be fully addressed.
Japan’s PMI Services was finalized at 54.1 in March, a notable improvement from February’s 52.9 and marking the most significant growth for the past seven months. PMI Composite also rose to 51.7 from the previous month’s 50.6.
Usamah Bhatti, economist at S&P Global Market Intelligence, noted that near-term outlook for the service sector appears “robust”, as outstanding business, a key indicator of future work, continues to rise at “near-record rates”. Confidence regarding the 12-month future also remains strong among service providers.
However, the sector is not without its challenges, particularly on the price front. Businesses signaled “another marked increase in cost burdens,” underlining ongoing inflationary pressures. These pressures are mirrored in the broader Japanese private sector, where cost inflation has hit a “five-month high”.
Bhatti added that inflationary pressures, alongside BoJ’s recent shift away from negative interest rates, “will likely remain a downside risk to the Japanese private sector economy in the coming months.”
San Francisco Fed President Mary Daly offered described three rate cuts this year as a “very reasonable baseline.” However, she was careful to clarify that such a projection should not be interpreted as a commitment, stating, “not a promise.”
Daly highlighted the current state of economic growth as a factor tempering the immediacy for policy adjustments, noting, “Growth is going strong, so there’s really no urgency to adjust the rate.”
Furthermore, Daly voiced concerns over the risks associated with prematurely lowering interest rates. She warned of the “real risk” that too early a cut could entrench the “toxic tax” of persistently high inflation.
Cleveland Fed President Loretta Mester said overnight that three rate cuts might be appropriate this year, though she mentioned, “it’s a close call” on the possibility of fewer reductions being needed.
Addressing the upcoming meeting scheduled for April 30-May 1, Mester expressed that it is unlikely there will be sufficient information available to make a decision on reducing rates by then. However, she left the door open for a rate cut in June, stating, “We have to be data dependent so I don’t want to rule that out.”
Mester highlighted the importance of upcoming data to gauge whether the disinflation process is merely experiencing a “temporary detour” or if there are signs that efforts to bring inflation back down to the 2% target are faltering.
She cautioned against premature or overly rapid rate reductions, warning that such actions could jeopardize the progress made on inflation control. “Moving rates down too soon or too quickly without sufficient evidence to give us confidence that inflation is on a sustainable and timely path back to 2% would risk undoing the progress we have made on inflation,” Mester remarked.
ECB’s Consumer Expectations Survey for February indicated continuing decline in consumers’ median inflation perceptions over the past 12 months, marking a fifth consecutive month of decrease, settling at 5.5% down from 6.0% in January.
Furthermore, median expectations for inflation over the next 12 months have dipped to 3.1% from 3.3%. This level is the lowest recorded since the onset of Russia’s conflict with Ukraine in February 2022.
Expectations for inflation three years ahead remained stable at 2.5%.
UK PMI Manufacturing was finalized at 50.3 in March, climbing from February’s 47.5 to mark a 20-month high. This development represents the sector’s first move above the critical 50.0 threshold since July 2022, indicating a tentative resurgence in manufacturing activity.
Rob Dobson, Director at S&P Global Market Intelligence, highlighted, “The end of the first quarter saw UK manufacturing recover from its recent doldrums.” This recovery is attributed primarily to revival in production and new orders, spurred by strengthening domestic demand. Despite the growth being characterized as hesitant, following year-long downturns, the shift towards expansion signals a turning point for the sector.
The resurgence in demand has also buoyed manufacturers’ confidence, with positive sentiment reaching an 11-month peak. Remarkably, 58% of companies surveyed anticipate increase in their output over the coming year.
However, challenges persist, including “weak export performance and supply chain stresses,” which continue to hinder the sector’s full recovery potential. The EU market, in particular, has been identified as the “main drag” on overseas demand, compounded by ongoing issues in the Red Sea impacting supply chains.
Eurozone PMI Manufacturing was finalized at 46.1 in March, down from February’s 46.5. Disparities across member countries continued, with Greece achieving a 25-month high at 56.9, Italy at 12-month high at 50.4, and Spain dipped slightly to 5.1.4. Meanwhile, Germany recorded a 5-month low at 41.9, and France fell to 46.2.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, provided a grim outlook based on the latest PMI figures, suggesting that the recession in Eurozone’s manufacturing sector is likely to persist.
De la Rubia noted that Eurozone’s manufacturing industry, heavily reliant on the collective output of Germany, France, Italy, and Spain—known as the Euro-4 countries—faces significant challenges as Germany and France experience notable downturns. While Italy and Spain showed signs of recovery in March and February, respectively, their improvements have yet to offset the overall sector’s decline.
While that the pace of decrease in incoming orders has slowed in the first quarter, yet the industry still records a net loss in orders compared to the previous months. This trend raises concerns that the sector may soon exceed the longest contraction spell for incoming new orders recorded during the euro crisis from 2011 to 2013. Such a scenario underscores the difficulties facing a swift reversal in manufacturing activity across Eurozone.
RBNZ Governor Adrian Orr articulated a firm stance today and emphasized that the committee is “laser-focused” on steering inflation back to its target range.
Orr’s acknowledged the progress and RBNZ is “on track” getting inflation back to targets. Yet he also tempers expectations by noting that the journey is far from complete with the admission that they are “not there yet.”
A critical element highlighted by Orr concerns inflation expectations, which he identifies as a significant challenge in the battle against rising He pointed out the cyclical nature of inflation expectations, stating, “the more people think inflation will rise next year, the more inflation will rise next year.”
RBA’s minutes from March 18-19 meeting revealed no explicit discussion on rate hikes, marking a departure from previous communications that outlined the board’s considered options.
The board assessed that it would require more time to gain “sufficient confidence” in inflation’s return to target range within a foreseeable timeframe. At the same time, it emphasized on the priority to “preserve as many of the gains in the labor market as possible.”
These considerations led to the characterization of the policy outlook as ambiguous, with the board finding it “difficult to either rule in or out future changes” in the cash rate target.
Inflation remains elevated, albeit on a gradual decline towards the target, while labor market is approaching conditions synonymous with full employment. In light of these observations, maintaining the cash rate target unchanged was deemed the most suitable course of action.
The board also recognized that risks had become little more even”, noting that recent data did not suggest “materialisation of upside risks to inflation” and confirmed an anticipated slowdown in economic output.
US ISM Manufacturing PMI rose from 47.8 to 50.3 in March, above expectation of 48.5. The sector is now back in expectation for the first time since September 2022.
Looking at some details, new orders rose from 49.2 to 51.4. Production jumped from 48.4 to 54.6. Employment rose from 45.9 to 47.4. Prices rose from 52.5 to 55.8, highest since July 2022.
ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the March reading (50.3 percent) corresponds to a change of plus-2.2 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.
China’s Caixin PMI Manufacturing rose from 50.9 to 51.1 in March, above expectation of 51.0, marking the highest level in 13 months.
Wang Zhe, Senior Economist at Caixin Insight Group, noted acceleration in both supply and demand within sector with “overseas demand picking up”.
Despite the overall improvement, employment continued “contraction. Additionally, “depressed price level worsened”.
Japan’s PMI Manufacturing was finalized at 48.2 in March, up from February’s 47.2, highest in four months.
Usamah Bhatti of S&P Global Market Intelligence noted that while the sector’s performance remained “downbeat,” there were emerging signs that the “worst of the weakness had passed”. This observation is based on softer reductions observed in both output and new orders inflows.
However, it’s important to highlight that the average PMI reading for Q1 stood at 47.8, indicating the weakest quarterly performance since Q3 2020, when it was 46.7.
Inflationary pressures “remained marked” Although the rate of input price inflation has moderated to its weakest in over three years, the challenge of high costs persists. In response to these pressures, selling price inflation has intensified to a three-month high, reflecting manufacturers’ efforts to safeguard profit margins by transferring higher expenses onto their customers.
Japan’s Q1 quarterly Tankan survey unveils mixed economic sentiment among the nation’s large businesses. Service sector expressed their highest levels of optimism in over three decades, contrasting with a slight decline in confidence among manufacturers.
Large manufacturing index dropped from 13 to 11, still surpassing expectation of 10. However, outlook for large manufacturing firms saw modest increase from 8 to 10, slightly below forecasted 11.
On the brighter side, non-manufacturing index climbed from 32 to 34, exceeding expectations of 31 and marking the highest level since 1991. Despite this, non-manufacturing outlook remained steady at 27, falling short of anticipated 30.
Additionally, large all-industry Capex gauge, which measures capital expenditure plans across industries, is projected to grow by 4% in the new fiscal year. This figure, though positive, falls significantly below the anticipated 9.2% growth.
China’s official NBS PMI Manufacturing climbed from 49.1 to 50.8 in March, surpassing expectations of 50.1. This uptick not only marks the sector’s first expansion in six months but also represents its highest reading in a year
Details showed notable increases in manufacturing production, which leaped from 49.8 to 52.2, and new orders, which surged from 49.0 to 53.0. Furthermore, new export orders rose from 46.3 to 51.3.
PMI Non-Manufacturing also showed positive momentum, climbing from 51.4 to 53.0, slightly above anticipated figure of 51.3. PMI Composite index, which encompasses both manufacturing and non-manufacturing activities, improved from 50.9 to 52.7,
Zhao Qinghe, senior statistician at NBS, attributed the March surge to increased production resumption efforts following Lunar New Year holiday, alongside improvement in market vitality.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2025 All rights reserved.
Fed Powell downplays significance of recent strong labor market and inflation data
Fed Chair Jerome Powell downplayed the significance of recent labor market and inflation data that surpassed expectations, he noted that these developments do not significantly alter the Fed’s overall economic outlook.
“Recent readings on both job gains and inflation have come in higher than expected,” Powell said at a forum at Stanford University overnight. However, he was quick to clarify that these developments do not fundamentally shift the broader economic narrative, which he described as “one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”
In discussing the Federal Reserve’s approach to monetary policy easing, Powell affirmed the “meeting by meeting” decision-making process and acknowledged that rate cuts are “likely to be appropriate at some point this year.”
Yet, he stressed the prerequisite of having “greater confidence” in inflation’s downward path towards 2% target before any interest rate red reduction would be considered.
“Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” he remarked.