Ukraine International Bonds Tumble after Trump-Zelenskiy Clash

The US ISM Manufacturing PMI is expected to tick a tad lower in February.

Investors will also follow the ISM Prices index and the Employment index. 

EUR/USD came under pressure and broke below the 1.0400 level.

Anticipation is mounting as the Institute for Supply Management (ISM) gears up to unveil the February United States (US) Manufacturing Purchasing Managers’ Index (PMI) this Monday. This crucial report serves as a vital indicator of the health of the US manufacturing sector, while also offering a window into the broader economic outlook.

Key points to keep in mind:

PMI benchmarks: A reading above 50.0 signals an expanding manufacturing sector, whereas a value below 50.0 indicates contraction.

Analyst predictions: Experts are forecasting a February PMI of 50.8, marginally below January’s 50.9. Following this slight downtick, the index is still expected to remain within the expansion zone.

Economic resilience under pressure: It’s worth noting that while the manufacturing sector showed signs of expansion, the health of the overall economy has been put to the test amid some loss of momentum in key fundamentals in past weeks, pouring cold water over the economic "exceptionalism" of the US.

This report not only reflects the pulse of the manufacturing area but also hints at the evolving narrative of the wider economy.

What to expect from the ISM manufacturing PMI report?

In January, the manufacturing sector continued its upward momentum for the third straight month, fueled by improvements in the ISM Manufacturing PMI. Several key components contributed to this optimistic picture:

New Orders surge: The New Orders Index continued to climb, signaling that manufacturers are receiving an increasing number of orders.

Production rebound: The Production Index bounced back into expansion territory for the first time since April 2024, indicating that factories have ramped up their output.

Rising costs: The Prices Index continued its upward trend in January—the fourth straight month of rising prices—likely reflecting buyers locking in and deploying their pricing strategies for 2025.

Backlog of orders: The numbers dipped slightly—from 45.9 in December to 44.9 in January, marking a 1 percentage point decrease. This continues a trend, marking the 28th month in a row where order backlogs have fallen, with none of the six largest manufacturing sectors seeing an increase in their order books in January 2025.

Employment gain: After contracting for 14 of the past 16 months, the Employment Index rebounded in January, climbing to 50.3 and signaling a return to expansion.

Generally, a PMI reading above 50 percent indicates that the manufacturing sector is growing, while a reading below 50 percent signals contraction. However, even levels above 42.5 percent over time can point to broader economic expansion.

Overall, the strength in manufacturing could boost high-yield assets like stocks, as investors become more optimistic about growth prospects. Meanwhile, the US Dollar (USD) might experience selling pressure as market confidence grows and investors shift toward riskier assets. Additionally, indicators such as rising new orders and easing price pressures are positive signs that could further propel economic expansion.

When will the ISM Manufacturing PMI report be released and how could it affect EUR/USD?

The ISM Manufacturing PMI report is scheduled for release at 15:00 GMT on Monday. Ahead of the data release, EUR/USD accelerated its bearish tone and slipped back to the 1.0380 zone to print new two-week lows, and is showing some difficulty in returning to the area beyond the 1.0400 barrier on a sustained basis.

Pablo Piovano, Senior Analyst at FXStreet, explained that the continued downward trend is likely to steer EUR/USD back toward its 2025 low of 1.0176, which was set on January 13. He mentioned that if this level breaks down further, it could signal a bearish turn, pushing the pair back to the critical parity zone.

Piovano also noted that on the upside, the pair faces a bit of resistance at the 2025 high of 1.0532 recorded on January 27. If the pair manages to break through this barrier, traders might see it surge toward the December 2024 top of 1.0629, especially once the Fibonacci retracement level of the September-January decline at 1.0572 is cleared.

Piovano added that the negative outlook is likely to persist as long as the spot trades below its key 200-day SMA at 1.0729.

He also pointed out that the Relative Strength Index (RSI) dropped to around 47, indicating a pick-up in the bearish stance, while the Average Directional Index (ADX) below 13 suggests that the current trend is weakening.

Economic Indicator

ISM Manufacturing Employment Index

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of the overall economic condition in US. The ISM Manufacturing Employment Index represents business sentiment regarding labor market conditions and is considered a strong Non-Farm Payrolls leading indicator. A high reading is seen as positive for the USD, while a low reading is seen as negative.

Source: FXSTREET

Turkish annual inflation dipped below 40% in February, the lowest print in almost two years, ahead of an anticipated interest-rate cut this week.

Inflation slowed to 39.1% in February from 42.1% the prior month, state statistics agency TurkStat said. The median forecast in a survey of analysts by Bloomberg expected the rate at 39.9%, with estimates ranging between 39.5% and 40.3%. 

Monthly inflation was 2.27%, slowing from 5% in January. The data surprised economists, who had a median forecast of 2.9% in a separate poll. 

The Turkish lira reversed losses against the US dollar after the data and was flat at 36,47 11.24am Istanbul time. The banking equity index extended gains to rise as much as 5.5%. 

“We would normally expect the threat of higher inflation to suggest potential a tighter policy stance than our baseline. On this occasion, however, we think the overall risk is tilted towards faster easing than forecast in our baseline scenario. This builds on our earlier analysis showing the central bank is giving increasing weight to non-inflationary factors for its rate decisions. That includes easing growth, the potential for labor market weakness and political demands for lower borrowing costs,” says Bloomberg Economics economist Selva Bahar Baziki.

A partial retreat from a decision on regulated price increases in medical examinations was a main contributor to lower-than-expected inflation, said Istanbul-based economist Haluk Burumcekci. Price increases in those co-payments had been a major factor that drove up January inflation. 

The downside surprise is likely to strengthen expectations of another rate cut by the central bank on Thursday. Almost all analysts surveyed by Bloomberg see policymakers lowering the main borrowing cost to 42.5% from the current 45%. 

The challenge is to ensure inflation expectations — which policymakers highlight as a risk — don’t flare up amid the cuts. Households’ price expectations for the next 12 months rose slightly in February. 

Backward-indexed price groups such as rent and education also continue to remain problematic, with both seeing the biggest monthly increases in February. The central bank has previously said that such services inflation remains outside the scope of monetary policy’s influence. 

Ahead of Monday’s data, Goldman Sachs Group Inc economists noted an acceleration in dollarisation last month, saying FX deposits increased by US$10 billion (RM44.6 billion) and put pressure on the lira. “While we think the scale of dollarisation in February was notable, the bar for the Turkish central bank to pause its cutting cycle remains high,” analysts led by Kevin Daly said in a report. 

On Friday, the central bank lowered the monthly growth limit for FX loans to 0.5% from 1%, with lenders subjected to reserve requirement practices should they surpass the threshold. The scope of FX loan exemptions from the growth limit has also been narrowed, the bank said in a statement. 

Monetary policymakers raised their year-end inflation projection, which also serves as a target, to 24% from 21% last month. Governor Fatih Karahan has warned that cuts are “not on autopilot” and that policymakers could slow the pace or put them on hold if necessary.

Source: Theedgemarkets

Slovakia is likely to face elevated borrowing costs until the government reins in the budget deficit and the war in neighboring Ukraine comes to an end, according to the country’s debt management chief.

The $140 billion economy needs to repay record debt this year amid risks stemming from its dependence on the car industry — under threat of higher US tariffs —, the proximity to the military conflict in Ukraine and turbulent domestic politics complicating efforts to narrow the fiscal gap.

“The deficit and the state of public finances are reflected in our risk premium,” Daniel Bytcanek, the head of the Debt Management Agency in Bratislava, said in an interview. “On top of that, we’re still penalized for the war in Ukraine.”

Bytcanek was speaking before last week’s public showdown between US President Donald Trump and Ukrainian leader Volodymyr Zelenskiy at the White House.

The agency sold a €3 billion ($3.1 billion) international bond in February, with bids exceeding a record €9 billion as investors sought to lock in attractive yields. The notes were issued at 130 basis points above the mid-swaps as the euro-zone member’s debt carries the third-highest risk premium among peers, after Italy and Lithuania.

The government aims to cut the deficit to 3% of economic output by 2027, from 5.8% last year, but it needs to find more savings to meet the target. The ruling coalition has been shaken by infighting in recent months, with Moody’s Ratings highlighting political tensions and institutional challenges when it downgraded the sovereign’s credit score in December.

A reduction in the deficit combined with an end to the war in Ukraine could bring Slovak bond yields down by up to three quarters of a percentage point, the debt agency’s chief said.

Maturing Bonds

Slovakia needs to finance €6.5 billion of maturing bonds this year, plus a €6.3 billion budget deficit. Following strong domestic auctions and the record syndicated sale, the agency has covered 40% of annual financing needs in the first two months.

Still, the country can’t sustain rolling over €13 billion in debt annually, according to Bytcanek.

“The deficit needs to come down,” he said. “We’re starting to feel the impact of higher maturing debt.”

While the declining interest rates in the euro zone are providing some relief, the impact of the monetary easing on sovereign debt isn’t as strong as it used to be, Bytcanek said, expecting fewer than four rate reductions by the European Central Bank this year.

“Slovak bond yields should be around 3% right now, but they’re not,” he said. “This is due to inflation, geopolitical risks, and concerns over Europe’s economic future - whether it’s tariffs, energy, or the war in Ukraine.”

Source: Theedgemarkets

Crude oil prices began trade this week with a gain, driven higher by the latest economic update from China, which showed manufacturing activity expanded at the fastest in three months in February, suggesting a bright demand outlook.

Brent crude traded at $73.11 per barrel at the time of writing, with West Texas Intermediate at $70.07 per barrel, both up moderately from Friday’s close.

China’s purchasing managers’ index for February rose to 50.2, from 49.1 in January, sparking optimism about oil demand, especially as the reading topped analyst expectations, which were for a more modest increase, at 49.9. Readings over 50 show expansion, while those below 50 suggest a contraction in activity.

Meanwhile, according to Reuters, last Friday’s clash between President Trump and President Zelensky of the Ukraine made the prospect of a peace deal for the Eastern European country more distant than it had been a week earlier. On the other hand, the publication wrote, the show of solidarity behind Zelensky demonstrated this weekend by European leaders was a positive sign for oil markets.

“It’s unclear where the US now stands, making a peace deal seem more distant than a week ago. This is altering energy-market hopes for an easing of sanctions,” ING analysts wrote in a note earlier today. “The shift in expectations is reflected in early morning price action for oil, with Brent up more than 1% at the time of writing.”

Separately, oil traders are bracing for the potential entry into effect of U.S. tariffs on Canadian and Mexican imports, including oil, the ING analysts also wrote, noting that last year, Canadian oil imports accounted for close to two-thirds of total U.S. oil import volumes.

In further bullish news, the latest Ukrainian drone attack on a Russian refinery has extended doubts about the stability of fuel supply from Russia to international markets.

Source: OILPRICE

The NZD/USD pair holds ground after registering a six-day losing streak, trading around 0.5600 during European trading hours on Monday. Technical analysis of the daily chart suggests a bearish market bias, as the pair moves downwards within a descending channel pattern.

The 14-day Relative Strength Index (RSI) remains below the 50 level, strengthening the bearish outlook for the pair. Moreover, the NZD/USD pair stays positioned below the nine- and 14-day Exponential Moving Averages (EMAs), indicating weaker short-term momentum.

On the downside, a successful break below the psychological level of 0.5600 would lead the NZD/USD pair to test the crucial support at the lower boundary of the descending channel at 0.5570 level. A break below this support zone could reinforce the bearish bias and put downward pressure on the pair to test the psychological level of 0.5700 level. Further support appears around 0.5516, its lowest level since October 2022, recorded on February 3.

The NZD/USD pair could target the primary barrier at a nine-day EMA of 0.5662, followed by the 50-day EMA at 0.5696, which is aligned with the descending channel’s upper boundary. A break above the channel would weaken the bearish sentiment and support the pair to explore the region the three-month high at 0.5794, reached on January 24.

NZD/USD: Daily Chart

Source: FXSTREET