Markets
European June PMIs disappointed on all accounts. The manufacturing rout continued, unexpectedly easing from 44.8 to 43.6. Services have long compensated but are now also showing a loss of momentum, retreating more than expected from 55.1 to 52.4. The composite series fell to 50.3 (-2.5 points) as a result. Diving into some details, new business inflows declined for the first time since January. This was driven by an increasingly sharp downturn in manufacturing. Services registered only a modest increase. Backlogs fell at the steepest rate for seven months. S&P Global considers this as a bad precursor for payroll numbers. Indeed, employment growth slowed again in June with the manufacturing sector cutting jobs for the first time since January 2021. Headcount in the services sector waned to the lowest since March though remains strong by historical standards. Factory input prices dropped for a fourth consecutive month. Those in the services sector continued to rise at a rate well above the long-term average, in particular due to wage pressures, though the pace moderated. Prices charged for goods fell the most in three years but rose sharply for services even as the rate cooled substantially. Concerns over demand growth and the broader impact of higher interest rates depressed optimism for the year ahead to the lowest level so far this year and below the long-run average. S&P Global concludes: ” […] the probability has increased somewhat that the GDP change will again carry a negative sign in the current quarter, due in part to weak services activity in France. […] the downward trend in the Composite PMI points to a difficult second half of the year as companies across all sectors face deteriorating order books.” The market reaction was textbook with German yields tumbling 11-17 bps across the curve, stocks under recessionary pressure and the euro down for the day. EUR/USD is testing minor support at 1.0893. Commodities and commodity-related currencies including the AUD, NOK and NZD face the recessionary fall-out. AUD/USD tumbles to 0.667 from 0.675, NZD/USD hits a weekly low around 0.613 and Norwegian krone erases the little that what was left from yesterday’s bigger-than-expected rate hike to trade 1.75% lower against the euro (EUR/NOK 11.82). US PMIs came in close to expectations for services. The sector held strong at 54.1. The pain for the manufacturing sector intensified (46.3) vs consensus hoping for a stabilization around 48.5. US yields hold on to (most) of their daily losses of about 6.4-8.2 bps.
British PMIs also missed the bar though showed a bit more resilience than in the EMU (composite PMI 52.8 from 54). The services gauge eased from 55.2 to 53.7. The manufacturing gauge dropped 0.9 points to 46.2. Service providers still reported solid new inflows, contrasting the steep and accelerated fall in manufacturing. Jobs were created for a third month straight, thanks to the services sector, and the pace of hiring was the fastest since September 2022. Input prices showed similar dynamics to the EU. Prices charged rose sharply in services, pushed by strong wage pressures while there was only a fractional decline in manufacturing. Private sector firms remain optimistic about their growth prospects 12 months ahead. The PMIs followed stronger-than-expected UK retail sales and give the pound a push in the back against an generally weak euro. EUR/GBP intraday lost almost a full big figure to trade in the 0.8545 area currently. UK yields rise 4.8 bps at the front but lose almost >10 bps at longer maturities as markets further boost BoE tightening bets and ponder its economic impact (6.25% at some point).
News & Views
Belgian Business confidence in June fell for the third consecutive month, the National bank of Belgium reported. The overall synthetic curve declined from -9.1 to -12.1. Business climate worsened sharply in business related services (-2.5 from 10.5). All components of the indicator declined. In addition to a more negative assessment of current activity, respondents expressed much more pessimistic expectations of future activity and market demand in general. All components in the trade sub-indicator (from -13.2 from -9.2) also fell as both demand and employment expectations and intentions of placing order with suppliers in the next three months deteriorated. The third consecutive drop in manufacturing (-15.6 from -14.3) reflects a more unfavourable assessment of total order books and stock levels which was partially offset by more positive demand expectations. The near stabilisation in the building industry (-6.6 from -6.0) was due to an improvement in the recent orders and increased equipment use. Other components deteriorated slightly.
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