Will the market become volatile as upcoming PMI releases keep coming?

Last week saw consecutive declines in stock prices including a record drop, as risk-off sentiment progressed.

After markets closed last week, China (National Bureau of Statistics) manufacturing and non-manufacturing PMIs came in at unprecedented lows, well below expectations.

Central banks and governments around the world are expected to respond, with moves in monetary and fiscal policy anticipated.

Rather than an ordinary policy rate announcement, an emergency meeting could lead to a change in monetary policy.

Fiscal stimulus and special tax cuts are also possible responses from governments.

With headlines drawing focus, a volatile market environment is anticipated.

◎ Today's Points of Focus

1) PMI

The PMI for China’s manufacturing and non-manufacturing sectors released last Saturday dropped dramatically.

However, China’s PMI is considered less reliable and less watched than the Caixin Manufacturing PMI published by Caixin/Markit, which is a private-sector measure.

If today’s Caixin Manufacturing PMI misses expectations and comes in like the Friday’s official manufacturing/non-manufacturing PMI, the risk-off trend is expected to intensify.

Additionally, the US ISM Manufacturing Index will be released.

The ISM Manufacturing Index fell sharply last year but had been recovering from the trough.

This time, attention is on what figures will emerge amid the impact of COVID-19.

Besides the two high-focus PMIs above, manufacturing PMIs (revised) from Europe, the UK, and the US will also be released.

These are revisions, so they may not move much, but large deviations between consensus and actual results can cause a reaction, so stay tuned.

2) COVID-19

The spread of infections is impacting markets across the board.

In equities, there have been record falls; in commodity futures, there have been declines, and even gold, traditionally a safe haven, has dropped.

In the bond markets, conditions differ between developed and emerging economies: in developed nations bonds are being bought and yields fall, while in emerging markets bonds are being sold and yields rise.

Volatility remains high across markets, suggesting a rough trading day ahead.

Attention is on whether central banks, led by the Fed, will coordinate rate cuts or implement easing measures.

If rate cuts or other measures are announced, stock prices are likely to rebound and commodity futures markets may unwind.

We will be watching whether the spread of infections prompts risk-off behavior, or whether central banks act to reverse risk-off dynamics.

3) UK-EU FTA Negotiations

From today, negotiations on a Free Trade Agreement (FTA) between the UK and the EU will begin.

Although termed an FTA, talks will cover not only trade but also fishing rights, defense, movement of people and services, subsidies, and rules, among other topics.

With the UK seeking complete autonomy from EU oversight and the EU aiming to establish rules for ongoing mutual relations as neighbors, friction is anticipated.

If negotiations do not reach a conclusion by June, the UK has stated it could opt for a no-deal Brexit.

Headlines about negotiation progress or statements can move the pound, so stay vigilant.

◎ Today's Economic Calendar

Monday, March 2

First UK-EU FTA negotiations

10:45　CNY Caixin Manufacturing PMI

16:00　TRY Turkish Manufacturing PMI

16:30　SEK Swedish Manufacturing PMI

17:45　EUR Italian Manufacturing PMI (revised)

17:50　EUR French Manufacturing PMI (revised)

17:55　EUR German Manufacturing PMI (revised)

18:00　EUR Euro Area Manufacturing PMI (revised)

18:30　GBP UK Manufacturing PMI (revised)

23:45　USD US Manufacturing PMI (revised)

Tuesday, March 3

00:00　USD ISM Manufacturing Index

09:30　AUD Current account and Building Permits