Market movers today
In the US, the Markit PMI manufacturing and services for June is due out . Manufacturing PMI has cooled off since it peaked at 55 in January. The current level of manufacturing PMI points to GDP growth around 1.6% and even though this does not sound impressive, we believe that this level is representative of the underlying economic strength. Thus, we do not look for any significant changes to the PMI manufacturing. We expect PMI services to have increased to 54.2 and continue to believe that the moderate growth will be driven primarily by the service sector.
Also in the US, Fed governors Bullard (non-voter, dove), Mester (non-voter, hawkish) and Powell (voter, neutral) are due to speak today.
In the euro area, PMI figures are due out . Manufacturing PMI rose from 56.7 in April to 57.0 in May while the service PMI declined from 56.4 in April to 56.3 in May, leaving composite PMI unchanged. Seemingly, the weak manufacturing PMIs observed in recent months in the US and China did not drag euro area PMIs down in May, but could still weigh on the June figures. We expect PMIs to remain somewhat unchanged in June, as activity in the euro area is still strong, although risks seem tilted to the downside. New orders are currently at a six-year high and the order-inventory balance, which is usually a good leading indicator, has started to diverge and could drag manufacturing PMI down in June. Additionally, the weakness in the external environment already mentioned could drag on export orders.
Selected market news
After a week of significant turmoil in financial markets on the back of the plunge in oil prices, Asian equity markets are seeing a relatively quiet session this morning. Oil prices are also stabilising with the Brent oil price now having recovered over the past two days to USD45.4 per barrel. One supporting factor may be the relatively soft comment from Fed governor James Bullard, who said that while the rate hike yesterday was ‘not such a big problem’ , the projection to raise the federal funds rate to 3% over the next 2.5 years is ‘unnecessarily aggressive’. Bullard is known to be a dove, so the soft comments may not be so surprising, but nevertheless point to some disagreement within the Fed’s policy committee about the out look for monetary policy in the US.
In relation to the Brexit negotiations, Theresa May made an offer yesterday at the EU summit to allow the three million or so EU citizens living in Britain lawfully at the point at which the UK leaves the bloc in March 2019 to stay, and also not to require any families with EU citizens to be split up. This proposal clearly signals a softer stance by the UK administration, which has been on the defensive following the poor election result on 8 June.
