Economists forecast the Jibun Bank Services PMI to increase from 53.1 to 53.2 in February.
While the headline PMI figure will move the dial, investors must consider the prices sub-component. The Bank of Japan is eyeing the services sector to deliver much-needed demand-driven inflationary pressures to enable a pivot from negative rates. An upswing in labor market costs and a pickup in selling prices could support bets on an April Bank of Japan pivot from negative rates.
Beyond the numbers, investors must track BoJ commentary for views on interest rates and timelines to exit negative rates.
On Thursday, private-sector PMI numbers for February will garner investor interest. The services sector accounts for over 70% of the US economy, giving the Services PMI more weightage.
Economists forecast the S&P Global Services PMI to fall from 52.5 to 52.0 in February. An unexpected increase in service sector activity could further delay Fed plans to cut interest rates. However, investors must look beyond the headline number, with job creation and prices being the focal points.
A pickup in labor costs could signal an upward trend in consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.
