Trump and Ueda Comments and Early February PMI Findings
February 21, 2025
After weeks of confrontational trade talk and action, President Trump switched to a good cop approach on trade with China, expressing eagerness to hold talks soon with Xi Jinping and hope that a deal can be struck to lessen tensions over trade and other stuff.
Following data showing an acceleration in Japanese inflation, Bank of Japan Governor Ueda warned against an excessively rapid rise in Japanese long-term interest rates, saying that officials are prepared to step of their purchases of Japanese government bonds in response.
In overnight financial market action, the dollar recouped 0.5% against the Japanese yen, and also rose 0.3% versus the euro, Australian dollar, Mexican peso and Chinese yuan, 0.2% relative to the Swiss franc, kiwi and sterling and 0.1% relative to the Canadian dollar. The 10-year Japanese JGB fell back two basis points, but that was less than yield declines of 5, 5, 4, and 3 bps in comparable German, Italian Spanish and French sovereign debt. Stock markets posted gains today of 4.0% in Hong Kong, 1.0% in Taiwan, and 0.9% in China following Trump’s offering of an olive branch. European equity movements have been inconsequential, and DOW futures have extended yesterday’s drop. The price of Bitcoin rose 0.8%, while oil fell by a similar amount. Gold’s price is 0.4% lower.
The preliminary U.S. S&P Global-compiled service sector preliminary purchasing managers survey from February reveals a much greater-than-anticipated setback. Instead of marginally topping the 52.9 January reading, the index dropped 3.2 points to a 13-month low of 49.7 and was 6.9 points below December’s 33-month high. MAGAnomics may have half of American voters elated, but businesses in the service sector are fearful that the new agenda will create new supply bottlenecks and make available qualified workers harder to find. The manufacturing PMI index rose 0.4 points to 51.6, roughly in line with expectations. But the service sector is much larger than manufacturing, and the composite purchasing managers index consequently dropped 2.3 points to a 17-month low of 50.4.
More unfavorable U.S. economic news came from other releases today. There was a greater-than-forecast 4.9% drop in existing home sales last month that more than reversed a 2.9% advance in December. Even more worrisome, the 3.8-point drop in the preliminary University of Michigan index of consumer confidence was extended by an additional 3.1 points in the revised number out today. At 64.7 in the final estimate for February, the number shows an almost 10-point plunge from 74.0 in December and represents a 15-month low. Rampant tariphobia is dissuaded American households from committing to large purchases, and the sense of personal job security has weakened sharply as well.
Among other preliminary purchasing manager survey results reported this Friday,
- Japan‘s composite PMI improved to a 5-month high of 51.6 in February. Services (53.1) and manufacturing (48.9) were their highest readings in four and two months.
- India’s composite PMI printed at a 6-month high of 60.6, signaling very dynamic activity and up from a recent low reading of 54.1 in October. While manufacturing edged back to a 2-month low of 57.1, services jumped from January’s 26-month low of 56.5 to an 11-month high of 61.1. February results exceeded expectations.
- In Australia, a 27-month high manufacturing PMI of 50.6 and 6-month high services PMI of 51.4 lifted the composite PMI to a better-than-forecast 6-month high of 51.2.
- Euroland‘s composite PMI of 50.2 matched January’s 5-month high and was 1.9 points above November’s 10-month low. Input price inflation was more pronounced than in January, and business sentiment weakened in the face of slack demand. These factors depressed the services PMI to a 3-month low, but manufacturing deteriorated at the slowest pace in nine months.
- Within the euro area, Germany‘s composite PMI rose half an index point to a 9-month high of 51.0, but France‘s composite PMI of 44.5 and the services PMI were each at 17-month lows and indicated bigger headwinds than expected.
- Britain‘s composite PMI of 50.5 in February was very similar to the readings in the prior three months and was accompanied by unwelcome signs of renewed inflationary pressures.
The three measures of Japanese consumer price inflation in January accelerated. The overall index rose 1.4 percentage points to a 2-year high of 4.0%, as food and energy pressures intensified. Excluding fresh food, CPI inflation reached a 19-month high of 3.2%, and excluding both food and energy put Japanese inflation at a 10-month high of 2.5%. All three figures exceeded the 2% target.
British retail sales in January rebounded more sharply than forecast, with a gain of 1.7% from December but the year-on-year advance shrank to 1.0%. British consumer confidence in February rose 2 index points but remained quite weak historically with a negative reading of -20.
French business confidence recovered to a 3-month high in February but, at 95.6, stayed below its long-term average of 100. Sub-indices for services and manufacturing were higher than in January, but those for construction and the labor market were lower.
Czech business confidence improved to a 22-month high in February, but consumer sentiment was at a 1-year low.
Danish manufacturing sector business confidence rose to an 8-month high this months.
Mexican GDP shrank 0.6% last quarter, its worst performance in 4-1/2 years, and the year-on-year growth rate slowed as a result to a 15-quarter low of 0.5%. Growth of 1.2% in 2024 was down from an average 4.5% pace in the three previous years.
Canadian retail sales fell back 0.4% last month after rising 2.5% in December.
Italian consumer price inflation of 1.5% (a 15-month high) was reconfirmed. That’s double the 9-month low of 0.7% last September but below the ECB target and Italy’s own peak of 11.8% in October 2022.
Producer price inflation in January printed at -0.3% in Latvia, 1.6% in Moldova, 2.3% in Serbia and 2.1% in Ireland.
Late Thursday came news that the Bank of Jamaica had left its policy interest rate unchanged at 6.0%. Four 25 basis point cuts last August, September, November and December had lopped a percentage point off the peak of 7.0% that had previously been maintained since November 2022. Inflation in Jamaica of 4.7% was below the 4-6% target midpoint and down from 11.8% in April 2022, but its prognosis as is the case for so many countries is surrounding by many potential external risks.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Jamaica, British retail sales and consumer confidence, Japanese CPI, Mexican GDP, preliminary purchasing manager surveys
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