Weak Job Growth and Strong Services PMI-Conflicting Economic Picture

U.S. macroeconomic data shows weak job growth but expanding services. Markets react to trade tensions, Fed policy, and ECB decisions amid economic uncertainty.

Overnight, U.S. macroeconomic data painted a mixed picture, highlighting weakness in the labor market while showing resilience in the services sector. The ADP employment survey reported that private businesses added just 77,000 workers to their payrolls in February, significantly below the forecasted 140,000. This marked the smallest increase in seven months. Nela Richardson, chief economist at ADP, attributed the slowdown to policy uncertainty and reduced consumer spending. She noted that recent indicators suggest employers are hesitant to hire as they assess the economic climate.

Meanwhile, the Institute for Supply Management (ISM) services PMI showed expansion for the eighth consecutive month. Key components such as business activity, new orders, employment, and supplier deliveries grew for the third month, a trend last seen in May 2022. Despite this positive sign, financial markets faced pressure due to ongoing global trade tensions. The dollar index (DXY) dropped nearly 1.3% on Wednesday, falling below 105, and continued its decline on Thursday.

Asian markets responded to the latest U.S. macroeconomic data and escalating trade tensions. The dollar index hovered near the 104 mark amid growing market pressures. Gold prices climbed steadily, approaching $2,950 per ounce, while oil prices declined, reflecting broader uncertainty in the financial landscape.

Weak Job Growth and Strong Services PMI-Conflicting Economic Picture

Unemployment claims rose to 242,000 last week, exceeding market expectations of 221,000 and reaching the highest level in over two months. This increase deepened concerns about the U.S. labor market following the weak ADP employment report. Later in the day, Federal Reserve Governor Christopher Waller is scheduled to speak at the Wall Street Journal CFO Network Summit in New York. His remarks on the economic outlook could influence financial markets, given his key role in shaping monetary policy.

The Federal Reserve’s Board of Governors unanimously voted to maintain the federal funds rate in a target range of 4.25% to 4.50%. The Committee reiterated its commitment to achieving maximum employment and 2% inflation over the long term while acknowledging that inflation remains elevated. The Fed’s December Summary of Economic Projections signaled only two rate cuts totaling 50 basis points in 2025, a downward revision from the previously projected full percentage point cut.

Gold remained in demand, with spot prices rising toward $2,950 per ounce due to a weaker dollar and increased economic uncertainty. In contrast, oil prices faced downward pressure, with WTI crude settling around $66.30 per barrel after a 2.6% drop on Wednesday. The Australian dollar strengthened following stronger-than-expected economic growth data, with GDP expanding by 0.6% quarter-on-quarter in Q4 2024, surpassing market expectations.

European Central Bank in Focus

The European Central Bank (ECB) is widely expected to cut interest rates by 25 basis points, bringing the main refinancing rate down to 2.65%. If confirmed, this would be the fifth consecutive rate cut amid sluggish economic activity in the Eurozone and concerns over U.S. tariffs on EU exports. Investors will closely watch ECB President Christine Lagarde’s press conference for insights into the central bank’s future policy direction.

As financial markets navigate a landscape of mixed economic data, trade disputes, and central bank policy decisions, volatility will likely persist. Investors will continue monitoring upcoming economic releases and key speeches for further clarity on the global economic trajectory.

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