Ear to the Ground
07 March 2025
It has been a difficult week for investors to interpret, with conflicting data. In the US, the latest surveys from the Institute for Supply Management (ISM) to February continued to indicate that both the manufacturing and service sectors remain in a state of expansion. Whilst the manufacturing index remained above 50, a fall in the index suggested slower growth, and there was a notable fall in new order expectations. The same index but for the service sector conversely pointed to stronger growth, being higher than the January reading and above consensus expectations. Anxiety was noted, however, given the potential impact of tariffs moving forward, along with US federal spending cuts.
Taking the market by surprise both last week and this, however, has been the sharp fall in the Atlanta Fed GDPNow Real GDP (economic growth) estimate for the first quarter of 2025. As a consequence we have seen weakness in the US dollar. Since the end of February the US dollar index (DXY) has fallen by just under 3.6% at the time of writing. This index measures the value of the US dollar relative to six major foreign currencies, being the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Sticking with the US, the latest non-farm payroll figures continued to show that jobs continue to be added. There were uptrends, namely in the healthcare sector, but the number of additions was lower than expectations. We started to see the impact of spending cuts at the government level, but it is expected to be a few months yet before we see the full extent of job cuts because of these.
In Europe it has been political moves rather than the release of economic data which has led to an increase in bond yields. On the 3rd March the German 10 year government bond yield closed at 2.491% (investing.com). At the time of writing the yield stands above the 2.83% level. The main contributor to this jump in yield is the decision by European leaders, following emergency talks in Brussels earlier in the week, to agree to a massive increase in defence spending. There is the potential that €800bn may be unlocked for such. Whilst a positive move for the share price of defence companies the impact on the government bond market was a negative one, with the funding for this spend likely to need to come from the raising of debt.
Finally, at the time of writing the Nasdaq Composite index has entered correction territory, defined as a fall of more than 10% from a previous high. From the close recorded on the 19th February the index is now down more than 11%. Whether this is the early stage of a more deeply rooted rotation, or simply a readjustment after a very strong run, remains to be seen.
This article is for information purposes only and should not be construed as advice. We strongly suggest you seek independent financial advice prior to taking any course of action.
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