Equities ease ahead of crucial economic data

European stocks fell on Tuesday in the lead-up to data that will offer a window into the health of major economies, while the dollar hovered close to its strongest in six weeks.

The eurozone, Britain, France and the US are all set to publish flash February PMI data, with market on the lookout for signs of the toll that tighter monetary policy has taken on activity.

In early trading, the Euro Stoxx 600 fell 0.2%, with major indices in Germany, France and Britain opening slightly lower.

The data comes at an important time for equity markets, whose strong start to the year after a bruising 2022 has stalled in February.

“We are at a pivotal moment, where investors are thinking about restarting some positions,” said Francesco Sandrini, head of multi-asset strategies at Amundi. “These numbers are really important.”

Manufacturing activity in the eurozone is seen as shrinking in February, though at a slower rate than in the past five months. Services activity is forecast to have expanded modestly.

German business activity returned to growth for the first time in eight months in February thanks to easing supply bottlenecks and improved underlying demand, its data shows.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.2%.

US markets, closed on Monday due to Presidents’ Day holiday, were set for slim losses. E-mini futures for the S&P 500 were last down 0.5%.

Earlier, Asian stocks also slid, weighed down by the prospect of the US Federal Reserve remaining on its hawkish path.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9% to 529.97 points, below a six-week low of 529.05 touched last week.

Kicking off the round of PMIs was Japan, where manufacturing activity shrank at the fastest pace in 30 months in February, as the world’s third-largest economy faces weakening demand and struggling to tame cost pressures.

The Nikkei closed 0.2% lower.

Data and the dollar

The dollar index, which measures the US currency against six others, was last at 104.11, just below a six-week high of 104.67 touched on Friday.

The euro was down 0.2% to $1.067, and is set to snap four straight months of gains and end February weaker.

Investors’ focus is also firmly on the release on Wednesday of the minutes of the Fed’s latest meeting earlier this month when it raised interest rates by 25 basis points.

The market is now pricing US rates to peak at 5.3% in July and remain above 5% by the end of the year, moving away from expectations of deeper rate cuts this year.

The yield on 10-year Treasury notes was up 2.3 basis points to 3.852% after touching a three-month high of 3.929% on Friday.

The yield on the 30-year Treasury bond was up 1.1bp to 3.899%, while that of the two-year Treasury paper, which typically moves in step with interest rate expectations, was up 3.5bp at 4.658%.

Reuters