Treasury Yields Soar as Flash PMI Data Rises More than Expected in February

Treasury yields rose sharply, pushing the U.S. Dollar higher and dollar-denominated gold lower as both the U.S. manufacturing and service sectors improved more than expected. The stock market, which had opened lower, fell even further as the reports highlighted further resilience in the U.S. economic recovery.

Manufacturing PMI Stronger but in Contraction Territory

On Tuesday, the S&P Global Flash US manufacturing PMI data rose to 47.8, up from January’s reading of 46.9. Traders and economists were anticipating a reading of 47.4. The report also showed that activity in the manufacturing sector reached a four-month high.

Services Activity Jumps into Expansion Territory

Activity in the services sector was also better than the forecast, rising into expansion territory to 50.5. The figure was well above last month’s 46.8 reading and the 47.3 estimate. Activity in the service sector is now at its highest level in eight months, the report showed.

S&P Global Market Intelligence:  Inflation Still Major Concern

“February is seeing a welcome steadying of business activity after seven months of decline. Despite headwinds from higher interest rates and the cost of living squeeze, the business mood has brightened amid signs that inflation has peaked and recession risks have faded,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

However, while the data came in better-than-expected, Williamson noted that the manufacturing sector remains in contraction territory. He added that unseasonably warm weather could also have contributed to activity growth in the service sector.

Williamson also noted that inflation remains a major concern.

“The improved supply situation has taken price pressures out of manufacturing supply chains, but the data underscore how the upward driving force on inflation has now shifted to wages amid the tight labor market,” he said. “By potentially stoking concerns over a wage price spiral, accelerating service sector price growth will add to calls for higher interest rates, which could in turn subdue the nascent expansion.”