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The ISM Services index rose sharply in February, climbing 2.3 points to 56.1. This marks the highest reading since mid-2022 and extends the expansion streak to 20 consecutive months. Growth also broadened across industries, with 14 reported expansions, up from 11 in January.

The supplier deliveries index remained in expansionary territory for a 15th straight month, edging down slightly to 53.9. Readings above 50 continue to signal slower deliveries, consistent with firmer demand conditions and ongoing capacity constraints in parts of the services economy.

New Orders rebounded forcefully in February, jumping 5.5 points to 58.6. This follows January’s pullback and suggests that demand momentum has recovered. Business activity also strengthened further, rising to 59.9, its highest level since late 2022.

New export orders staged a notable turnaround, surging back into expansionary territory to 57.2 after January’s sharp contraction. This rebound suggests that the earlier weakness tied to trade frictions and travel disruptions may have been temporary, though volatility remains elevated.

Price pressures moderated, but remain intense. The prices index fell 3.6 points to 63.0, its lowest level in nearly a year, but continues to signal widespread cost increases. Employment improved modestly, rising to 51.8, pointing to continued, albeit measured, job growth in the services sector.

Key Implications

February’s report points to a clear reacceleration in service sector demand, with new orders, business activity, and exports all strengthening meaningfully. Respondents highlighted firm underlying momentum, noting that “stronger consumer demands, interest rate stabilization, improved supply chain and stronger services activity” are driving new business, while others cited demand being pulled forward due to cost pressures from data center and infrastructure investment. The extent of strength in demand in this release likely weakens the case for imminent rate cuts from the Federal Reserve.

While price pressures eased modestly in February, they remain elevated and widespread, reinforcing concerns about sticky services inflation. One respondent noted that “costs remain high for technology, facilities, utilities, and contracted services" and that "labor expenses are also increasing due to competitive hiring” while another emphasized that supply chains have adapted but not normalized from a pricing perspective. Combined with slower supplier deliveries, these dynamics suggest inflation risks remain skewed to the upside, supporting a more cautious Federal Reserve stance on near term policy easing.

Markets

Since the start of the conflict in the Middle East, markets this week already discounted a first bunch of risks related to energy supply, inflation and other sources of potential damage for the overall economy. A measured assessment simply remains illusive. However, for this kind of integrated risk-off move to reverse, markets need a clear perspective on an end game or an educated guess on how long this uncertainty might last. However this kind of visibility apparently won’t be available anytime soon. In the mean time, all kind of noise and rumors from “well-informed sources” are swirling, pushing markets back and forth. We pick out some. US president Trump ‘engaging’ the US to escort tankers in the Strait of Hormuz and/or providing financial insurance. The NYT reporting Iran indirectly reached out to the CIA to look for terms end the war (later denied by Iran). In the meantime war headlines continuously flashing on the screens, including on Turkey intercepting a projectile fired from Iran. Later, also US Secretary of Defense, Pete Hegseth repeated that they haven’t reached a mission accomplished situation. Of course, the conflict in the Middle East isn’t the only source of uncertainty investors have to cope with. At the start of US dealings, US Treasury Secretary Bessent indicated that the US might move to a global trade tariff of 15% still this week. Just to be followed by another headline suggesting the EU might be exempt from that US universal tariff, evidently again referring to people familiar with the matter. This chaotic news complex left investors at different markets drawing mixed conclusions. European equities (EuroStoxx 50), after losing abound 6% this week, are rebounding 1.5%. US indices also open with minor gains. Energy markets, a key source of uncertainty and inflation fears, show a mixed picture, with the Dutch gas reference contract easing from €60+/MWh levels to currently trade near €50/Mwh. At the same time, Brent oil holds well north of $80/b. After the recent bear steeping, mirroring the Fed’s and ECB’s inflation concerns, EMU and US interest rate markets apparently reached a first reflation point. German yields are changing between -1 bp (2-y) and +2 bps (30-y). (Much) too early to draw any conclusions. US yields are changing less than 2 bps across the curve. February ADP US private job growth printed at a solid 63k, but was understandably largely ignored. The US Services ISM might face a similar fate later today. On FX markets, the ‘USD safe haven run’ is taking a breather. DXY eases back below 99 (98.8). EUR/USD shows tentative signs of bottoming after touching an new YTD low yesterday (currently 1.1635). The yen also gained modestly (USD/JPY 157.3 from 157.75). Japanese Fin Min Katayama reiterated that the government might act to address excessive currency moves.

News & Views

Czech inflation fell by 0.1% M/M in February with the headline number slowing further below the 2% inflation target: from 1.6% Y/Y to 1.4% Y/Y. Details showed food and non-alcoholic beverage prices falling by 1.5% M/M with annual price growth in that category slowing from 1.3% to 0.4%. Energy prices were flat on the month to be 7.8% lower compared to last year. Underlying core inflation measures remain sticky above the CNB-target, ranging between 2.7% Y/Y and 3.1% Y/Y. Czech goods prices fell 0.5% in February (-0.7% Y/Y) but services inflation remains extremely sticky at 0.5% M/M and 4.5% Y/Y. In the global turmoil, the Czech market didn’t respond to the more benign numbers. Czech National Bank deputy governor Frait today said that recent global developments may limit room for a potential slight easing of Czech monetary policy if major central banks refrain from lowering their interest rates. EUR/CZK holds below first resistance at 24.40 today.

Swiss prices increased for the first time since June, rising by 0.6% M/M in February. On an annual level, price growth remained the same at 0.1%. The monthly increase is due to several factors including rising prices for housing rentals and for air transport. Hotels and other accommodation providers also recorded a price increase, as did international package holidays. Prices for food and vegetable juices fell. Swiss core inflation, excluding fresh and seasonal products, energy and fuel rose by 0.2% M/M and 0.4% Y/Y. Goods prices rose by 0.2% M/M (-1.4% Y/Y) while services prices increased by 0.9% M/M (1% Y/Y). It’s the final print before the March SNB meeting. With the policy stuck at the 0% border, focus went to the CHF-rate recently, prompting strong verbal interventions by the central bank. SNB vice-president Martin today repeated that willingness and readiness which is higher given the recent political events. The Swiss franc nevertheless holds below EUR/CHF 0.91 at historically strong levels.

US service sector activity strengthened sharply in February, with the ISM Services PMI rising from 53.8 to 56.1, well above market expectations of 53.8, marking the highest level since July 2022. The data point to a broad-based acceleration in the services economy, which continues to be a key driver of overall US growth.

Underlying components showed strong momentum across demand and activity indicators. The Business Activity index climbed from 57.4 to 59.9, while New Orders surged from 53.1 to 58.6. Employment index also improved, rising from 50.3 to 51.8. Price pressures, however, eased slightly. Prices index declined from 66.6 to 63.0.

According to the ISM, the latest reading indicates the services sector is "heating up", with key activity and order components reaching their strongest levels since 2024. Historically, a Services PMI of 56.1 corresponds to roughly a 2.5% annualized increase in US real GDP.

Full US ISM services release here.

Daily Pivots: (S1) 157.24; (P) 157.60; (R1) 158.06; More...

Intraday bias in USD/JPY is turned neutral with current recovery. On the upside, above 157.96 will extend the rebound from 152.25 to retest 159.44 high. On the downside, though, break of 155.52 will bring deeper fall back to 152.07/152.25 support zone. Overall, price actions from 159.44 are viewed as a near term consolidation pattern. Outlook will remain bullish as long as 38.2% retracement of 139.87 to 159.44 at 151.96 holds.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 152.16) holds. However, sustained break of 55 W EMA will argue that the pattern from 161.94 is extending with another falling leg.

Daily Pivots: (S1) 0.7775; (P) 0.7827; (R1) 0.7870; More….

A temporary top is formed at 0.7877 with current retreat. Intraday bias in USD/CHF is turned neutral first. Further rise is expected as long as 0.7671 support holds. Rebound from 0.7603 is seen as correcting the whole fall from 0.9022. Above 0.76877 will target 0.8039 resistance next.

In the bigger picture, a medium term bottom could be in place at 0.7603 on bullish convergence condition in D MACD, Firm break of 0.8039 resistance will argue that it's at least correcting the down trend from 0.9002. Stronger rebound would then be seen to 38.2% retracement of 0.9200 to 0.7603 at 0.8213.

Daily Pivots: (S1) 1.3266; (P) 1.3345; (R1) 1.3438; More...

A temporary low is in place at 1.3252 with current recovery. Intraday bias in GBP/USD is turned neutral first. Fall from 1.3867 should at least be correcting the rise from 1.2009. Below 1.3252 will target 38.2% retracement of 1.2099 to 1.3867 at 1.3192. Sustained break there will pave the way to 1.3008 support. For now, risk will stay on the downside as long as 1.3574 resistance holds, in case of recovery.

In the bigger picture, as long as 1.3008 support holds, rise from 1.3051 (2022 low) should still be in progress for 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. However, firm break of 1.3008 will raise the chance of medium term bearish reversal and target 1.2099 support next.

Daily Pivots: (S1) 1.1526; (P) 1.1617; (R1) 1.1703; More….

A temporary low should be formed at 1.1529 with current recovery. Intraday bias in EUR/USD is turned neutral first. On the downside, below 1.1529 will resume the fall from 1.2081. Sustained break of 1.1576 structural support would confirm rejection by 1.2 key psychological level. That should also confirm medium term topping on bearish divergence condition in D MACD. Further decline should be seen to 38.2% retracement of 1.0176 to 1.2081 at 1.1353 next. However, firm break of 1.1740 support turned resistance will revive near term bullishness, and bring stronger rebound back to retest 1.2081 high.

In the bigger picture, as long as 55 W EMA (now at 1.1494) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Global markets are attempting to recover from the shock of a brutal Asian session as trading moves into Europe. Major European indices have managed to stage a modest rebound, helped in part by strong policy signaling from the US aimed at stabilizing energy markets. However, the recovery remains fragile. The underlying risks tied to the widening Middle East conflict have not disappeared, and markets remain highly sensitive to developments in the Strait of Hormuz.

While oil prices have eased slightly from earlier spikes, the geopolitical premium remains firmly embedded in energy markets. WTI crude has retreated from its session highs but is still trading near 75, well above levels seen before the escalation . The persistence of this war premium suggests that traders remain cautious about the potential for further disruptions to global oil flows.

The threat to shipping routes has become the central economic concern. Tanker traffic through the Strait of Hormuz had plunged earlier in the week as vessels avoided the area amid escalating military risks. In response, the U.S. government has moved to reassure markets that energy supply lines will remain protected.

Treasury Secretary Scott Bessent confirmed that Washington will introduce a series of measures aimed at supporting the flow of oil through the Persian Gulf. One key initiative involves the U.S. International Development Finance Corporation providing insurance coverage for oil tankers and cargo vessels operating in the Gulf region. This measure is designed to prevent insurers from withdrawing coverage and paralyzing energy shipments.

The announcement follows remarks from President Donald Trump, who said the US could deploy naval escorts to protect tankers navigating the Strait of Hormuz if necessary. Together, these measures have acted as a financial “tourniquet” for global markets.

Yet the improvement in market mood is being counterbalanced by another source of uncertainty: trade policy. The U.S. administration confirmed that its recently announced global tariff measures will soon take effect. Bessent said the planned 15% global tariff will be implemented this week.

More importantly, the Office of the U.S. Trade Representative and the Commerce Department will conduct additional studies that could justify further trade restrictions. In around five months time, Bessent expected tariffs to be back to the level before they were struck down by the Supreme Court.

The combination of geopolitical risk and rising trade tensions is keeping investors cautious. U.S. equity futures are currently hovering near flat levels, suggesting that traders remain reluctant to take aggressive positions.

Currency markets reflect a similar sense of restraint. Most major currency pairs remain within the previous session’s ranges, indicating that volatility has cooled for now. Even so, Dollar continues to dominate as the preferred safe-haven asset this week. Canadian Dollar is the second-strongest performer, benefiting from higher oil prices, while Yen holds the third position. Euro remains the weakest major currency, while Swiss Franc and Kiwi follow close behind. Sterling and Aussie trade in the middle of the performance table.

In Europe, at the time of writing, FTSE is up 0.87%. DAX is up 1.63%. CAC is up 1.12%. UK 10-year yield is down -0.007 at 4.400. Germany 10-year yield is up 0.004 at 2.770. Earlier in Asia, Nikkei fell -3.61%. Hong Kong HSI fell -2.01%. China Shanghai SSE fell -0.98%. Singapore Strait Times fell -2.11%. Japan 10-year JGB yield fell -0.014 to 2.119.

US ADP jobs grow 63k, pay premium for job switchers falls

US private sector employment grew moderately in February, coming in stronger than market expectations. Figures from ADP showed payrolls increasing by 63k during the month, compared with forecasts of around 45k.

The increase was driven primarily by the services sector, which added 47k jobs, while goods-producing industries contributed 16k. Small companies accounted for most of the growth, adding 60k positions. Large firms increased employment by 10k, while medium-sized businesses saw payrolls decline by -7k.

Wage growth remained steady but showed signs of cooling momentum for job changers. Pay growth for job-stayers held at 4.5% yoy, while wage gains for those switching employers slowed slightly from 6.4% to 6.3%.

According to Nela Richardson, hiring picked up and wage gains remain solid overall, but job growth remains concentrated in a limited number of sectors and the pay premium for switching employers has fallen to a record low.

Eurozone PPI surges 0.7% mom in January as energy costs climb

Eurozone industrial producer prices rose sharply in January, signaling renewed upstream inflation pressures. According to data from Eurostat, PPI increased 0.7% mom, significantly above expectations of a 0.2% rise.

The increase was broad-based across industrial categories. Prices for intermediate goods climbed 1.0% mom, while energy prices rose 1.3%. Capital goods prices increased 0.6% and durable consumer goods rose 0.8%, while non-durable consumer goods was the only category to decline, slipping -0.2%. Excluding energy, total industry prices still rose 0.6% during the month.

Across the wider European Union, PPI increased 0.8% mom. Among member states, the largest increases were recorded in Estonia (+13.7%), Bulgaria (+7.1%), and Finland (+6.9%). In contrast, producer prices declined in several countries, including Cyprus (-0.9%), Czechia (-0.7%), and both Germany and Slovakia (-0.6%).

Eurozone services PMI finalized at 51.9 as Germany leads growth

Eurozone business activity strengthened modestly in February, with services providing continued support to the region’s fragile recovery. The final PMI Services reading came in at 51.9, up from January’s 51.6. PMI Composite index was finalized at 51.9, up from 51.3 in the previous month

Among the major economies, Germany led the expansion with a composite reading of 53.2, marking a four-month high. Italy followed with a reading of 52.1, while Spain registered 51.5 despite slipping to a nine-month low. Ireland also remained in expansion territory at 52.5. France remained the weakest performer, however, with a composite reading of 49.9, still slightly below the 50 threshold separating expansion from contraction.

According to Cyrus de la Rubia of Hamburg Commercial Bank, the data suggest the ECB may have little reason to consider additional rate cuts in the near term. He noted that service sector costs remained elevated in February, driven by higher wages as well as rising energy and transport expenses. Germany could increasingly become the growth engine of the eurozone, as expanding infrastructure and defence spending begin to support broader economic activity.

UK PMI composite finalized at 17-month high, cost pressures persist

The UK service sector continued to expand steadily in February, with final PMI Services reading coming in at 53.9, only slightly below January’s 54.0. PMI Composite index was unchanged at 53.7, maintaining the 17-month high reached at the start of the year.

According to Tim Moore of S&P Global Market Intelligence, service providers reported rising new business inflows and stronger sales pipelines, driven largely by domestic demand. Businesses cited improved spending from both companies and consumers within the UK, though export orders remained relatively subdued and growth in that segment eased to a three-month low.

Despite the improving activity backdrop, employment declined across the sector. Companies continued to cut jobs as part of efforts to boost productivity and offset rising costs. Firms widely cited higher payroll expenses as a key driver of input cost inflation, alongside increases in food and technology costs. These pressures led to another robust rise in prices charged by service providers, with inflation in selling prices remaining close to January’s five-month high.

Swiss CPI rises 0.6% mom in February, annual inflation holds at 0.1%

Switzerland’s consumer prices rose more than expected in February, offering a modest sign of price pressure despite still subdued annual inflation. Data from the Federal Statistical Office showed CPI increased 0.6% mom, slightly above the expected 0.5% gain.

Core CPI, which excludes fresh and seasonal products as well as energy and fuel, rose by 0.2% mom on the month. The monthly increase was largely driven by higher domestic prices, which climbed 0.6%, while imported product prices rose 0.8%.

According to the FSO, the monthly increase was mainly driven by higher housing rents and air transport costs. Prices also rose for hotels and package holidays, while declines in items such as berries and fruit and vegetable juices partly offset the increase.

On an annual basis, headline inflation remained very subdued but slightly stronger than anticipated. CPI held steady at 0.1% yoy, slightly above expectations of a mild -0.1% yoy contraction. Core CPI edged down from 0.5%. Domestic prices accelerated modestly from 0.5% to 0.6%. Meanwhile, imported prices continued to decline, falling further from -1.5% to -1.6%.

Australia Q4 GDP beats with 0.8% qoq growth, reinforcing RBA demand concerns

Australia’s economy expanded faster than expected in the fourth quarter, reinforcing concerns that domestic demand may still be running hotter than the RBA would like. GDP grew 0.8% qoq, beating forecasts of 0.7% and accelerating from the previous quarter’s 0.5% pace. On an annual basis, growth came in at 2.6% yoy, also above expectations of 2.2%.

The expansion was broad-based, with output rising in 17 of the economy’s 19 industries. Both public and private demand contributed equally to the result, each adding 0.3 percentage points to overall growth. Household activity also showed resilience, with discretionary spending increasing 0.4% during the quarter, helped by strong retail events such as Black Friday.

At the same time, households continued to rebuild financial buffers. The saving ratio climbed to 6.9%, the highest level in more than three years, while per capita GDP rose 0.9% yoy — its strongest reading since 2022.

The strength of the data places the RBA in a difficult position. Just a day earlier, Governor Michele Bullock warned that demand may be outpacing the economy’s capacity. The GDP figures appear to reinforce that view, suggesting the current 3.85% cash rate may not yet be restrictive enough to cool activity.

Japan PMI composite finalized at 53.9, firms pass rising costs to customers

Japan’s service sector maintained steady momentum in February, with the final PMI Services reading edging up to 53.8 from January’s 53.7. The figure marks the strongest level since May 2024 and signals continued expansion in business activity, supported by improving demand conditions.

The broader picture for the economy also strengthened. PMI Composite rose to 53.9 from 53.1, pointing to the fastest pace of private sector expansion in nearly three years.

According to Annabel Fiddes of S&P Global Market Intelligence, the services sector recorded its quickest rise in sales in almost two years, while manufacturing performance also remained robust.

At the same time, cost pressures intensified across the private sector. Input costs climbed at a historically sharp pace, but improving demand allowed businesses to pass those increases on to customers. Selling prices rose at the fastest rate in nearly twelve years, suggesting firms are regaining pricing power while inflationary pressures remain elevated.

China PMIs show two-speed economy as official data contracts

China’s February PMI data revealed a widening divide between official indicators and private surveys, highlighting the uneven nature of the country’s economic transition.

The official manufacturing PMI, released by the National Bureau of Statistics of China, slipped to 49.0 from January’s 49.3, missing expectations and marking a second consecutive month of contraction. Activity in services and construction also stayed weak, with the non-manufacturing PMI edging slightly up from 49.4 to 49.5.

However, private-sector surveys paint a starkly different picture. According to data compiled by RatingDog, manufacturing PMI surged from 50.3 to 52.1, its strongest level since December 2020. The services PMI jumped even more sharply, rising to 56.7, the highest reading in nearly three years.

This divergence suggests a “dual-track” economy emerging in China. State-dominated sectors tied to construction and traditional heavy industry appear to be cooling, while private, export-oriented firms are experiencing a resurgence in demand, particularly in higher-value manufacturing and technology-linked industries.

Part of the discrepancy may also reflect seasonal distortions around the Lunar New Year. Large state factories often shut down for extended periods during the holiday, while smaller and more flexible private firms tend to ramp up production quickly to capture early-year export orders.

The February data may therefore capture both the growing pains of China’s structural shift toward “new productive forces” and the short-term disruptions created by the holiday cycle.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1526; (P) 1.1617; (R1) 1.1703; More….

A temporary low should be formed at 1.1529 with current recovery. Intraday bias in EUR/USD is turned neutral first. On the downside, below 1.1529 will resume the fall from 1.2081. Sustained break of 1.1576 structural support would confirm rejection by 1.2 key psychological level. That should also confirm medium term topping on bearish divergence condition in D MACD. Further decline should be seen to 38.2% retracement of 1.0176 to 1.2081 at 1.1353 next. However, firm break of 1.1740 support turned resistance will revive near term bullishness, and bring stronger rebound back to retest 1.2081 high.

In the bigger picture, as long as 55 W EMA (now at 1.1494) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

US private sector employment grew moderately in February, coming in stronger than market expectations. Figures from ADP showed payrolls increasing by 63k during the month, compared with forecasts of around 45k.

The increase was driven primarily by the services sector, which added 47k jobs, while goods-producing industries contributed 16k. Small companies accounted for most of the growth, adding 60k positions. Large firms increased employment by 10k, while medium-sized businesses saw payrolls decline by -7k.

Wage growth remained steady but showed signs of cooling momentum for job changers. Pay growth for job-stayers held at 4.5% yoy, while wage gains for those switching employers slowed slightly from 6.4% to 6.3%.

According to Nela Richardson, hiring picked up and wage gains remain solid overall, but job growth remains concentrated in a limited number of sectors and the pay premium for switching employers has fallen to a record low.

Full US ADP employment release here.

• The dollar follows successes on the international stage.
• Europe risks facing stagflation.

The US dollar is proving to remain king among safe-haven assets. At the same time, growing demand for financing in the American currency is pushing the USD index higher. The euro, on the other hand, is suffering from fears of a return of the energy crisis in Europe. Gas prices have jumped to €65 per megawatt hour. This is a long way from the peak of €345 in 2022, but the longer the conflict in the Middle East lasts, the more problems there will be for the economy.

Capital Economics estimates that maintaining gas prices at current levels will add 0.5 percentage points to inflation. In February, i.e. even before the war in Iran began, consumer prices accelerated from 1.7% to 1.9% y/y, while producer prices rose by 0.7% in a month, against average forecasts of 1.7% and 0.2%, respectively. The ECB is once again facing a situation in which inflation is accelerating, and the economy is losing momentum.

The US dollar, on the other hand, is reaping the benefits of the return of American exceptionalism to the markets. The United States is a net exporter of energy commodities, so its economy will be less affected by the surge in oil prices.

Even if the surge in inflation proves to be temporary, it will almost certainly force the Fed to extend its pause in policy easing. The chances of a federal funds rate cut in June have fallen to 37%. The futures market is pricing in less than a 60% probability of cuts in 2026, down from more than 70% a week ago.

High demand for the US dollar is undermining gold’s position. The precious metal saw its worst daily sell-off since late January. One of the key drivers of its rally in 2025 and February was the undermining of confidence in the US currency due to the uncertainty of Donald Trump’s policies and the associated debasement trade.

Macquarie notes that the greenback tends to strengthen when the United States interacts successfully abroad and demonstrates leadership. Thus, the First Gulf War in 1990-1991 was followed by a decade of success for the USD. After the US failures in the war on terror in the 2000s, the US dollar began to lose ground. The fall in EURUSD and gold proves that the greenback is regaining investor confidence.