Japan's Factory Activity Shrinks, US Policies Weigh on Outlook, PMI Shows

Economic

Summary:

Japan's factory activity shrank for an eighth consecutive month in February, while worries about US protectionist trade policies weighed on firms' outlook, a private-sector survey showed on Monday.

The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) rose slightly to 49.0 from 48.7 in January, indicating the softest contraction in three months.

The index was slightly higher than 48.9 in the flash reading but stayed below the 50.0 threshold that separates growth from contraction for the eighth straight month.

"Firms often mentioned weakness in domestic and global manufacturing demand and confidence," said Usamah Bhatti at S&P Global Market Intelligence, which compiled the survey.

Firms cited muted demand conditions, particularly from the United States, Europe and China, according to the survey.

The key subindex of output shrank for the sixth straight month in February on softer global demand, but the pace of contraction eased from January.

New orders extended contraction, staying below the 50.0 threshold since mid-2023, with firms citing weak client confidence in Japan and the international market.

Japanese manufacturers stayed positive about their business outlook in February, though the level of optimism eased sharply from the previous month. Their expectations for the year-ahead outlook for output softened to the lowest since June 2020, the survey found.

US President Donald Trump's tariff threat against key trading partners have stoked uncertainty for investors and policymakers, as an escalating trade war could affect the global economy.

"Firms highlighted the potential downside risks of US protectionist trade policies and a slower-than-anticipated economic recovery," said Bhatti.

Employment levels stagnated in February, as a rise in staffing levels due to filling full-time vacancies was mostly offset by the non-replacement of voluntary leavers and retirements.

Input prices rose, driven by higher costs for raw materials, labour, and utilities, as well as exchange rate fluctuations. These higher operating costs prompted manufacturers to increase their selling prices at a faster pace.

Source: Theedgemarkets

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Glendon

Economic

Forex

EUR/GBP pauses its three-day losing streak, hovering around 0.8260 during Monday’s Asian session. The currency cross strengthens as the Euro (EUR) gains traction following reports that France and the United Kingdom (UK) have proposed a one-month truce in Ukraine.

In an interview with France's Le Figaro on Sunday night, French President Emmanuel Macron stated that France and Britain are advocating for a one-month ceasefire in Ukraine to halt all air and sea conflicts, as well as attacks on energy infrastructure. This announcement followed crisis talks in London, where European leaders reaffirmed their support for Kyiv, pledged increased security spending, and discussed forming a coalition to enforce any potential truce.

The Euro also found support from stronger-than-expected February flash Harmonized Index of Consumer Prices (HICP) data from Germany, released on Friday. Despite this higher inflation reading, the European Central Bank (ECB) is still expected to maintain its easing stance in Thursday’s policy meeting. Investors now turn their attention to the Eurozone’s HICP inflation data, set for release later today.

However, EUR/GBP’s upside could be limited as the Pound Sterling (GBP) remains supported by expectations that the Bank of England (BoE) will adopt a more measured approach to monetary easing compared to other major central banks.

Market sentiment suggests the BoE may proceed cautiously due to strong wage growth, with Average Earnings (excluding bonuses) in the three months ending December rising to 5.9%—the highest level since April 2024.

Source: FXSTREET

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Owen Li

Economic

China is considering retaliatory measures on US agriculture and food products in response to tariffs from the Trump administration that are scheduled to take effect on Tuesday, according to the Global Times.

Beijing’s response will likely include tariffs and non-tariff measures, Communist Party-backed Global Times reported, citing a person they didn’t identify. China’s soymeal prices surged 1.5% on concerns that escalating trade tensions could disrupt US shipments of soybeans and tighten the market further.

President Donald Trump has pledged to double the levy on China to 20%, while also hitting Canada and Mexico with tariffs on March 4. The Asian nation is the world’s biggest importer of soybeans, which is typically crushed into cooking oil and animal feed, particularly for the country’s large pig herd.

China will “counter with all necessary measures to defend its legitimate rights and interests,” a spokesperson for the Chinese Ministry of Commerce said on Friday

Source: Theedgemarkets

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Justin

Economic

Forex

The Indian Rupee gains traction in Monday’s Asian session.

Foreign exchange intervention from the RBI might help limit the INR’s losses.

India’s HSBC Manufacturing PMI and US ISM Manufacturing PMI will take center stage later on Monday.

The Indian Rupee (INR) gathers strength on Monday. The potential intervention from the Reserve Bank of India (RBI) could provide some support to the local currency. On the other hand, the latest tariff rounds from US President Donald Trump on Canada, Mexico, and potentially China could boost the US Dollar (USD) and exert some selling pressure on the INR. Additionally, a recovery in crude oil prices could drag the Indian Rupee lower as India is the world's third-largest oil consumer.

Looking ahead, traders will keep an eye on India’s HSBC Manufacturing Purchasing Managers Index (PMI) for February, which will be published later on Monday. On the US docket, the ISM Manufacturing PMI will be released.

Indian Rupee rebounds despite Trump’s tariff threats

"Markets continue to live with the uncertainty and whiplash of the multitude of tariff proposals in the pipeline," said MUFG Bank.

India’s real Gross Domestic Product (GDP) grew 6.2% YoY in the fourth quarter (Q4) of 2024, compared to a 5.6% growth (revised from 5.4%) recorded in the previous quarter, according to data released by the National Statistical Office (NSO) on Friday. This figure came in weaker than the 6.3% expected.

The US Personal Consumption Expenditures (PCE) Price Index increased 0.3% in January, in line with expectations, the US Bureau of Economic Analysis showed on Friday.

The US PCE Price Index climbed 2.5% YoY in January, compared to 2.6% in December. The core PCE Price Index, which excludes volatile food and energy prices, climbed 2.6% YoY in January, down from 2.9% in December. Both figures came in line with the market consensus.

USD/INR sticks to positive bias in the longer term

The Indian Rupee trades in negative territory. The bullish outlook of the USD/INR pair prevails, with the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Further upside looks favorable as the 14-day Relative Strength Index (RSI) is located above the midline near 63.75.

The first upside barrier for USD/INR emerges at 87.53, the high of February 28. A bullish candlestick breaking above this level could lift the pair to an all-time high near 88.00 then 88.50.

On the flip side, the initial support level for the pair is seen in the 87.05-87.00 zone, representing the low of February 27 and the round mark. A breach of the mentioned level could drag USD/INR to the next bearish targets at 86.48, the low of February 21, followed by 86.14, the low of January 27.

Source: FXSTREET

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BEA

Data Interpretation

January PCE up 2.5% YoY, in line with expectations, down from the previous rate of 2.6%.

January PCE up 0.3% MoM, in line with expectations and the previous rate.

Core PCE up was 2.6% YoY, in line with expectations, down from the previous rate of 2.9%.

Core PCE up 0.3% MoM, in line with expectations, up from the previous rate of 0.2%.

Data indicates that personal consumption expenditures (PCE) declined by 0.2% MoM in January. Real personal consumption expenditures, adjusted for inflation, fell by 0.5% MoM, marking the largest monthly decline in nearly four years. The decline in January PCE was primarily driven by extreme winter weather and followed a robust holiday shopping season. A significant drop in automobile purchases was the main factor contributing to the decline in spending. Moreover, the weak growth in services expenditures, which account for the largest portion of PCE, could exacerbate concerns about the U.S. consumption outlook if the slowdown persists.

On a detailed level, goods prices rose by 0.5% due to increases in motor vehicles and gasoline prices. Meanwhile, services prices increased by 0.2%, with strong gains in entertainment costs partially offset by declines in healthcare prices. However, consumer spending unexpectedly fell in January, with PCE accounting for over two-thirds of U.S. economic activity declining by 0.2% MoM. The data may reflect early holiday shopping and the winter storm that swept through most regions. This aligns with the previously released data showing a 0.9% decline in U.S. retail sales in January. Nominal personal income increased by 0.9% MoM in January, partly boosted by the annual cost-of-living adjustment in Social Security benefits. Real disposable personal income, adjusted for inflation, rose by 0.6%, pushing the savings rate to its highest level since June of the previous year, reaching 4.6%.

Potential labor market risks are drawing attention, which could impact the backbone of the U.S. economy—consumption. Initial jobless claims in the U.S. surged by 22,000 last week, reaching 242,000.

Overall, Friday's PCE report brought some relief on the inflation front. Previous reports had shown that the cooling of inflation had not only stalled but also reversed. Fed officials have made it clear that they need to see a significant easing of inflation before considering rate cuts again, especially given the potential uncertainties of Trump's policies on prices.

U.S. January PCE

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FastBull Featured

Daily News

[Quick Facts]

The Israeli government has decided to impede humanitarian aid from entering the Gaza Strip

Trump has initiated a new round of tariff investigations on timber imports

Russia seeks to revive Nord Stream 2 with U.S. support

Multinational summit in the UK to address Ukrainian crisis

A ceasefire agreement between Russia and Ukraine appears unlikely

PCE aligns with expectations, rekindling hopes for a June rate cut by the Federal Reserve

[News Details]

The Israeli government has decided to impede humanitarian aid from entering the Gaza Strip

According to reports received on March 2nd, local time, Israeli Prime Minister Benjamin Netanyahu and his government have resolved to block humanitarian assistance from entering the Gaza Strip following the conclusion of the initial phase of the ceasefire agreement. A statement released by the Israeli Prime Minister's Office on the 2nd indicated that the Israel Defense Forces (IDF) had, as of that morning, prevented humanitarian aid from entering the Gaza Strip and had closed the border crossings into the region.

The statement indicated that, with the cessation of the first phase of the ceasefire in the Gaza Strip, and in light of Hamas's rejection of the proposal by U.S. President's Special Envoy for the Middle East, Steve Witkoff, to continue negotiations, Prime Minister Netanyahu has determined to halt all material transfers into the Gaza Strip, effective from the morning of the 2nd. The statement further clarified that Israel will not permit a ceasefire without the release of the hostages.

Trump has initiated a new round of tariff investigations on timber imports

On March 1st, local time, U.S. President Trump issued a directive for a fresh tariff investigation into timber imports, potentially leading to increased tariffs on imported timber. This investigation is slated for completion within 270 days. Trump signed a memorandum on the same day, instructing Secretary of Commerce Lutnick to conduct a national security investigation into U.S. timber imports under Section 232 of the Trade Expansion Act of 1962. Previously, Trump had also imposed tariffs on steel and aluminum products based on this legislation. The scope of this investigation encompasses not only raw materials like lumber but also timber products such as furniture. Meanwhile, Trump has mandated the implementation of new measures within 90 days to augment domestic timber supply by streamlining the review process for public land logging permits.

Russia seeks to revive Nord Stream 2 with U.S. support

Reports indicate that an ally of Russian President Putin has been strategizing to reinstate the Nord Stream 2 natural gas pipeline to Europe, backed by U.S. investors. This previously improbable maneuver underscores the extent of Trump's inclination towards improved relations with Moscow. According to individuals familiar with the discussions, the architect of this potential deal is Matthias Warnig, a former East German Stasi officer who served as the head of the Nord Stream 2 parent company until 2023. Sources suggest that Warnig's plan involves engaging the Trump administration through the U.S. business figures, forming part of a broader initiative to covertly facilitate an end to the Russia-Ukraine conflict while simultaneously strengthening economic ties between the U.S. and Russia.

Multinational summit in the UK to address Ukrainian crisis

The UK has announced a summit, scheduled for March 2nd, bringing together leaders from the UK, the European Union, and other nations to deliberate on the Ukrainian situation. Ukrainian President Zelenskyy is also slated to participate. According to a statement from the British Prime Minister's office, Prime Minister Starmer is steadfast in his support for Ukraine and is actively seeking avenues to achieve a lasting peace that safeguards Ukraine's sovereignty and security. French President Macron stated on February 28th that the UK and France have formulated proposals for providing Ukraine with enduring security guarantees, which will be a focal point of discussion at the London summit. Reuters, citing a Turkish diplomatic source, reports that Turkish Foreign Minister Fidan will reiterate Turkey's willingness to once again facilitate peace negotiations between Russia and Ukraine during the summit.

A ceasefire agreement between Russia and Ukraine appears unlikely

Ukrainian President Zelensky's meeting with U.S. President Trump in the Oval Office yielded unfavorable outcomes, marked by a heated exchange before the media. Zelenskyy did not address any questions from reporters before departing, and the joint press conference was canceled.

Trump's allies suggest that a resolution to the Russia-Ukraine conflict is improbable as long as Zelenskyy remains in power. Trump stated to reporters upon leaving the White House on Friday evening, "Either we're going to end it or let him fight it out." He added, "And if he fights it out, it's not going to be pretty, because without it, without us, he doesn't win."

PCE aligns with expectations, rekindling hopes for a June rate cut by the Federal Reserve

Data released by the Bureau of Economic Analysis indicates that the January U.S. Personal Consumption Expenditures (PCE) price index increased by 0.3% MoM, remaining consistent with the previous figure. The index rose by 2.5% YoY, reflecting a 0.1 percentage point deceleration. Core PCE, excluding food and energy, increased by 0.2% MoM, with a 0.1 percentage point deceleration. The YoY increase for core PCE was 2.6%, down from the prior reading of 2.9%.

A breakdown of the components reveals that goods prices increased by 0.5%, driven by higher prices for motor vehicles and gasoline. Meanwhile, service prices rose by 0.2%, with robust growth in recreational services partially offset by a decline in healthcare prices.

However, consumer spending unexpectedly decreased in January, with consumer expenditures, which account for over two-thirds of U.S. economic activity, declining by 0.2% last month. This data may reflect front-loaded holiday season purchases, as well as the impact of the cold snap and blizzards that affected a large portion of the country. This aligns with previously released data, which showed a 0.9% MoM decline in U.S. retail sales for January.

Several Federal Reserve officials have recently indicated that they require clear evidence of easing inflation before initiating another round of interest rate cuts, particularly given the potential uncertainties stemming from the Trump administration's policies on price levels. The latest economic data suggests a moderation in inflation, coupled with a decline in consumer spending. These relatively subdued inflation figures could potentially pave the way for further monetary easing by the Federal Reserve.

Following the release of the PCE data, futures contract traders have increased their bets on the Federal Reserve resuming its rate-cutting cycle in June of this year, as the data revealed that the January inflation increase aligned with expectations. They are assigning a higher probability to a second rate cut in September compared to the scenario of no rate cut.

[Today's Focus]

UTC+8 18:00 Eurozone HICP for February

UTC+8 22:00 U.S. ISM Manufacturing PMI for February

Risk Warnings and Disclaimers

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Glendon

Economic

The world of financial markets is both thrilling and challenging. Whether you’re drawn to trading stocks, analyzing forex trends, or managing investment portfolios, becoming a market pro requires dedication, knowledge, and the right mindset. This guide will walk you through the essential steps to transform yourself from a beginner to a seasoned market professional.

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Financial markets are constantly evolving, and staying ahead requires continuous learning.

Follow Market News: Subscribe to financial news outlets like Bloomberg, Reuters, and CNBC.

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Japan's Factory Activity Shrinks, US Policies Weigh on Outlook, PMI Shows

Source: Theedgemarkets

EUR/GBP Remains Above 0.8250 as France, UK Propose A One-Month Ukraine Truce

Source: FXSTREET

China May Target US Crops in Tariff Response

Source: Theedgemarkets

USD/INR Weakens Ahead of Indian, US PMI Releases

Source: FXSTREET

U.S. January PCE: Inflation and Employment Face New Challenges

March 3rd Financial News

[Quick Facts]

[News Details]

[Today's Focus]

Your Path to Becoming a Market Pro

Step 1: Build a Strong Foundation

Step 2: Develop Analytical Skills

Step 3: Gain Practical Experience

Step 4: Earn Relevant Certifications

Step 5: Stay Updated and Network

Step 6: Master Emotional Discipline

Step 7: Specialize and Innovate

Conclusion

Risk Disclosure