Ahead Today
G3: Eurozone unemployment rate
Asia: -
Market Highlights
US President Trump has confirmed that the 25% tariffs on Mexico and Canada will come into effect today. He has also signed an executive order that will raise additional tariffs on China to 20% from 10%. This raises the risk that Trump will indeed also follow through his threat on reciprocal tariff hikes on 2 April.
Markets have also become more concerned about US economic growth. US ISM manufacturing PMI index fell to 50.3 in February, from 50.9 in January, staying in expansionary territory for the second straight month but missing Bloomberg consensus of 50.7. Notably, the new orders sub-index fell to 48.6 from 55.1 in January, while the ISM employment sub-index declined to 47.6 from 50.3. The US 10-year yield fell to below 4.20% level, while the US 2 -year yield stayed below 4%. The fed funds futures markets have now priced in 3 rate cuts in the rest of this year. The broad US dollar index also fell 0.8% in Monday’s session.
What’s also concerning is the jump in US ISM manufacturing prices paid, with the index rising to 62.4 from 54.9, beating Bloomberg consensus of 56.0 and reaching the highest level since June 2022. Prices paid have increased for four straight months, suggesting inflationary pressures are starting to build at the producer level. However, it’s unclear how much of the higher costs that producers will be able to pass through to consumers, at a time when new orders have contracted.
Regional FX
Asian ex-Japan currencies have broadly strengthened against the US dollar, amid softening US yields and the US dollar following negative surprises in the US ISM manufacturing activity data. Notably, IDR (+0.6%) and SGD (+0.5%) led gains against the US dollar in Monday’s session.
China Caixin manufacturing PMI index rose to 50.8 in February from 50.1 in January, beating Bloomberg consensus of 50.4. However, this resilience in China’s factory activity could prove to be transient as US President Trump looks to further raise tariffs on Chinese imports. In the upcoming National People’s Congress, Chinese policymakers could provide more pro-growth measures including announcing a larger budget deficit target and maintaining a 5% growth target for this year.
Meanwhile, Indonesia’s headline CPI inflation eased to -0.1%yoy in February due to the government’s electricity discount, from +0.8% increase in January. Sequentially, headline CPI inflation was -0.48%mom in February. However, underlying core inflation picked up to 2.48%yoy from 2.36% in January. We expect Indonesia’s inflation to normalise in March, so the low February CPI reading is unlikely to be a trigger for Bank Indonesia policy rate cut.
