Flurry of Weak Economic Data Spurs a Risk-Off Session

Yields plummet as US economy shows signs of cracking. Markets were risk-off today following a slew of economic data and reports out of China that there may be a new Coronavirus with pandemic potential. Treasury yields dropped 7 bps across most of the curve, pushing yields 20-30 bps below their YTD highs. Most of the move occurred before 2 PM EST, and yields rebounded ~2 bps thereafter in a quieter end to the session. Meanwhile, equities had their worst session of 2025, with the NASDAQ down -2.20% and the S&P 500 well off its all-time highs after a 1.71% sell-off.

Services sector and consumer sentiment slow while inflation expectations climb. Today’s surge in demand for safe haven assets was initially driven by a surprise contraction in the services sector. According to preliminary February data, S&P Global US Services PMI was 49.7, the lowest level and the first contraction since January 2023. University of Michigan consumer sentiment made matters worse just 15 minutes later, with February’s final result at 64.7 (vs. 67.8 est.), the lowest level since November 2023. The decline was fueled by soaring long-term inflation expectations (3.5%), which hit the highest level since 1995, while consumers specified that tariffs are of particular concern.

PCE will headline the week ahead. Following last week’s hotter-than-expected CPI and PPI, doves will look to PCE to rekindle optimism that inflation is continuing its descent to 2%. Core YoY PCE is expected to slow to 2.6% in January from 2.8%, which would be tied for the lowest rate of inflation since March 2021. However, core MoM PCE is expected to accelerate to 0.3% from 0.2%. Meanwhile, the second Q4 estimate for annualized QoQ GDP is expected to be 2.3%, a sharp decline from 3.1% economic growth in Q3 2024.