MNI US OPEN: Inflation Stands Out In European PMIs

MNI: FRANCE FLASH MAR SERVICES PMI 57.4 (FOREC 55.0); FEB 55.5

MNI: GERMANY FLASH MAR SERVICES PMI 55.0 (FOREC 53.7); FEB 55.8

GERMAN DATA: Inflation a concern, but confidence falling (unlike in France)

Highlights from the German PMI release:

• Record input and output prices (like France)
• Manufacturing demand fell due to both supply problems and weaker demand.
• However, unlike in France, business confidence fell and this led to a reluctance for manufacturers to take on new staff.

MNI: EUROZONE FLASH MAR SERVICES PMI 54.8 (FOREC 54.3); FEB 55.5

Eurozone PMI sees weak confidence and rising prices

Highlights from PMI press release:

• Prices increased at unprecedented levels
• But exports fell and business confidence was weakest for nearly 18 months (France had seen confidence hold up).
• However, unlike in Germany, employment increased.
• Output growth outside of Germany and France was the weakest for a year (excluding the Omicron hit in Jan)
• Bund futures continue to move lower.

MNI: UK FLASH MAR SERVICES PMI 61.0 (FOREC 58.0); FEB 60.5

• UK FLASH MAR MANUF PMI 55.5 (FORECAST 57.0); FEB 58.0
• UK FLASH MAR COMPOSITE PMI 59.7 (FORECAST 57.5); FEB 59.9

UK DATA: High inflation, strong growth, but weakening confidence

Highlights from the PMI:

• Inflation second fastest "for more than 2 decades" (only faster in Nov 2021)
• "New business received by UK private sector firms increased sharply in March, although the rate of growth eased from February's eight-month peak." Manufacturing saw weakest new orders expansion since Feb 2021, however.
• Employment strong
• Supply chains: "Supplier delays the least widespread since October 2020. However, survey respondents continued to note that shortages of raw materials, staff absences and shipping delays had held back production growth."
• Weak confidence however: "Sharp drop in business optimism. The index dropped from 76.1 in February to 71.4 in March, to signal the lowest level of confidence since October 2020. Moreover, the monthly fall in business expectations (down 4.7 index points) signalled by far the greatest setback since the start of the pandemic and reflected much weaker year ahead growth projections in both the manufacturing and services sectors. "

FIXED INCOME: Bear steepening, but within yesterday's ranges

Bond markets continue to see relatively low liquidity with markets seemingly in cycles of up day followed by down day followed by up day... This morning is no exception. We have seen core fixed income generally move lower, but remaining within yesterday's ranges (and yields still a little away from the cycle highs seen). Curve are bear steepening on the day.

• The morning session has seen the release of PMIs across Europe and the UK. Record (or close-to-record) high inflation has been the dominant theme with output expectations showing some variation across countries. With the exception of France, however, confidence is seeping away, leading to concerned fears of stagflation. Markets seem more focused on the inflation than the growth side again, however.
• The busy data day continues later with US durable goods the headline (released alongside weekly claims data) while the US Markit PMI will also be released.
• The NATO summit could provide further headlines today (but is unlikely to change the narrative too much) while Fed's Evans is the highlight of cen-bank speak today.
• TY1 futures are down -0-10+ today at 122-26 with 10y UST yields up 6.5bp at 2.359% and 2y yields up 4.4bp at 2.143%.
• Bund futures are down -0.50 today at 159.30 with 10y Bund yields up 5.1bp at 0.515% and Schatz yields up 4.4bp at -0.215%.
• Gilt futures are down -0.05 today at 120.93 with 10y yields up 2.3bp at 1.648% and 2y yields up 1.4bp at 1.352%.

FOREX: Wall Street Pullback Does Little to Deter New USD/JPY Highs

• The greenback is mixed-to-higher in early Thursday trade, reflecting the more modest performance for European equities after the pullback on Wall Street into yesterday's close. The price action has done little to deter USD/JPY bulls, however, which continue to press the rate to new cycle highs, with 121.75 printed at the European open.
• European PMI data came in generally better-than-forecast, with the details of most releases continuing to outline price and cost pressures for purchasing managers. The EUR saw some support on stronger German release, but the impact faded through the morning.
• Both the Norwegian and Swiss central banks held relatively uneventful rate decisions, with the Norges Bank raising rates by 25bps and the SNB keeping rates unchanged - both alongside expectations. Nonetheless, both banks acknowledged the risks surrounding higher inflation in the near-term.
• NOK markets watched the release of the new rate path projections from the Bank, with the terminal rate (now end-2025) at 2.31%, the path projects 4 rates hikes this year (inline with exp) and a further 4 hikes in 2023 (Q4 2023 path projection upped to 2.35% from 1.62% prior. This was broadly inline with expectations, and leaves Norges Bank set to raise rates at each quarterly monpol report meeting.
• Focus turns to today's NATO summit, with a press conference due just ahead of the US cash equity open. Participants are set to discuss the Ukraine conflict, further sanctions pressure on Russia, and what possible red lines could be drawn against Russian activity in the country. Data highlights include weekly jobless claims and preliminary February durable goods. Fedspeak includes Kashkari, Waller, Bostic and Evans, but Evans should take the broader focus - he's the only FOMC member speaking today that hasn't already commented on policy.

EQUITIES: Energy Stocks Lead Early European Gains

• Asian markets closed mixed: Japan's NIKKEI closed up 70.23 pts or +0.25% at 28110.39 and the TOPIX ended 2.86 pts higher or +0.14% at 1981.56. China's SHANGHAI closed down 20.768 pts or -0.63% at 3250.264 and the HANG SENG ended 208.13 pts lower or -0.94% at 21945.95
• European equities are a little higher, with the German Dax up 44.58 pts or +0.31% at 14336.4, FTSE 100 up 21.61 pts or +0.29% at 7479.46, CAC 40 up 36.12 pts or +0.55% at 6610.45 and Euro Stoxx 50 up 11.59 pts or +0.3% at 3882.21.
• U.S. futures are gaining, with the Dow Jones mini up 160 pts or +0.47% at 34410, S&P 500 mini up 28.25 pts or +0.64% at 4475.75, NASDAQ mini up 113.5 pts or +0.79% at 14560.5.

COMMODITIES: Oil Edges Higher, Metals Mixed

• WTI Crude up $0.65 or +0.57% at $115.61
• Natural Gas down $0.02 or -0.32% at $5.213
• Gold spot down $4.99 or -0.26% at $1939.78
• Copper up $1.8 or +0.38% at $479.3
• Silver down $0.08 or -0.34% at $25.029
• Platinum down $8.22 or -0.8% at $1016.32