On the latest edition of Market Week in Review, Consulting Director Todd LaFountaine and Chief Investment Strategist Erik Ristuben discussed flash Purchasing Managers’ Index™ (PMI) data from February, as well as the recently released minutes from the U.S. Federal Reserve (the Fed), January meeting and the spike in the 10-year U.S. Treasury yield.

February flash PMI data comes in strong

Flash PMI numbers for February were unveiled the week of Feb. 19 by IHS Markit, Ristuben said. As the PMI is considered an indicator of the economic health of the manufacturing sector, there was heightened interest this time around, he explained—as it marked the first release of manufacturing data since the market downturn earlier this month. “The numbers out of the U.S., Europe, and Japan showed that the global economy held up well in the aftermath of market volatility,” Ristuben said. As evidence, he pointed to the flash U.S. Composite PMI™, which came in at 55.9—the highest it’s been since 2015. Both Europe and Japan also reported strong PMI numbers, Ristuben added. “Collectively, the magnitude of these readings shows that the global economy is still cranking away,” he concluded.

Market reaction to Fed meeting minutes

Shifting gears to the Fed, Ristuben noted that the central bank recently released the minutes from its January meeting—the final one with Janet Yellen at the helm. “In a nutshell, the Fed’s notes indicate an increase in expectations for economic growth,” Ristuben stated—“likely due to a combination of tax cuts and surging consumer confidence.” The central bank also pointed out that the possibility of higher inflation this year appeared more likely, he added—which, in Ristuben’s view, strengthens the case for more interest rate increases in 2018. “What’s important to note is that the Fed said all this before the surprising rise in wage growth during January—and before the stronger-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) reports,” he remarked. In other words, Ristuben said, the Fed anticipated the current increases in inflationary pressure.