First Round of This Week’s Economic Data Drives Yields Lower

Weak economic data spurs risk-off session. Declines in factory orders, durable goods orders, and ISM services from the prior month immediately sent swap rates ~5bps lower, leading to a 4-6bp decline on the day. Meanwhile, concerns of over-valuation led to a broad decline for equities, with the Dow, NASDAQ, and S&P 500 down 1.00-1.65% on the session. Bank stocks outperformed, with the KRE up 4.03% as NYCB stock soared nearly 18% higher. Attention has now shifted to Chair Powell’s 2-day testimony that begins tomorrow, as well as NFP and unemployment-rate figures on Friday.

Today’s data show a slight bump in service sector growth and highlight tougher times for manufacturing. The ISM services index declined to 52.6 in February, slightly below estimates and down from last month’s 53.4 reading. Elevated orders and overall business activity helped drive growth, but more cautious hiring dragged down the results. Still, this marks an eleventh-straight month of service-sector expansion. Also included in today’s data releases were factory orders for January, which declined by 3.6%, 0.7% more than estimated and a sharp drop from 0.2% growth in December. The decline was largely due to less contracts for Boeing passenger planes, but even excluding the impact of transportation, manufactured goods orders still declined by 0.8%.

China remains optimistic, sets ambitious growth target. China’s long-standing debt woes, property crisis, and deflationary pressures have been well documented, but political leaders continue to forecast economic growth. Li Qiang, Premier of the People’s Republic of China, announced a growth target of ~5% at this year’s annual meeting of the National People’s Congress. He maintained that the nation must “push ahead with transforming the growth model” as China attempts to boost households’ purchasing power and consumption. China’s household consumption (as a percentage of GDP) has dropped over the past six decades, while government spending has risen.