Daily Market Color

Upbeat Data Spurs Risk On Trade

US Stocks surged while Treasuries sold off sharply across the curve after better-than-expected US manufacturing data showed signs the sector is stabilizing.  The Institute of Supply Management’s manufacturing report at below 50 indicated factory activity contracted for a fifth straight month in February (the first time since the 2008 crisis), but the monthly index beat economist expectations (49.5 vs 48.5e).  The underlying data also showed signs of underlying strength.  New orders held steady at an index level of 51.5, while the employment, production and prices paid gauges all rebounded.  Sharp capex cuts by energy firms and weak global demand will continue to weigh on the energy sector, but based on this data it does not look likely to drag the US economy into recession.  Separate reports showed auto sales rose in February and construction spending increased in January to the highest level since 2007, adding to the positive market sentiment.

Economic reports released outside the US were less inspiring, but global stock markets reacted favorably as disappointing manufacturing data in Europe and China boosted the case for further monetary easing by central banks.  The euro hit a one-month low against the dollar as traders added to bets that the ECB will announce more stimulus when they meet on March 10.  The PBoC also raised its reference rate, strengthening the yuan for the first time in eight days as they ease policy via the recently announced cut in the reserve requirement ratio.

All three major US stock indexes are up nearly 2%, while Treasury yields and swap rates are 7-10 bps higher across all maturities.  There are no scheduled Fed speakers today.

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