Key Takeaways for Investors and Financial Professionals
- US stock market ended lower due to weak PMI data, indicating a weakening trend in manufacturing and services sectors.
- San Francisco Fed President expressed the view of two more interest rate hikes this year and the need for caution.
- US dollar index increased by 0.7%, while Brent crude oil prices decreased by 3.6%.
- 10-year US Treasury yield declined by 3 basis points, settling at 3.73%, and the 2-year Treasury yield increased by 3 basis points.
- US manufacturing PMI declined, indicating a faster pace of contraction, while services PMI slightly decreased, signaling a mild slowdown in growth.
- The US economy showed a growth rate of1% in 2022, and the annualized quarterly GDP growth rate for Q1 exceeded expectations.
- The core PCE price index for Q1 was revised upward to 5%, while the headline PCE price index remained steady at 4.2%.
- Expectations for May include a slowdown in the monthly increase of the PCE deflator, a decline in personal spending, and a modest increase in personal income.
- Durable goods orders for May and consumer confidence indexes will be published, providing insights into employment and consumer sentiment.
- Manufacturing PMIs in Europe continued to contract in June, indicating an increased pace of contraction, while service PMIs showed a slowdown in the growth of the service sector, transitioning to the contraction zone in France and declining in other regions.
- ECB President Lagarde’s speeches throughout the week will be closely watched, along with the speeches of Bank of Englandd (BoE) Governor Bailey and BoE Chief Economist on Wednesday.
- Germany’s preliminary CPI data for June is expected to show a slight increase of 0.2% on a monthly basis and a mild rise from 6.1% to 6.3% on an annual basis. Eurozone’s CPI data is anticipated to increase to 0.3% on a monthly basis but decline from 6.1% to 5.6% on an annual basis.
- The IFO Business Climate Index for Germany, reflecting assessments from various sectors, is expected to decline from 91.7 to 90.7 in June due to high inflation and ECB interest rate hikes.
- Eurozone’s final consumer confidence data for June and Germany’s GfK consumer confidence data for July will be released, with expectations of weak consumer confidence due to the impact of ECB interest rate hikes.
- The UK’s final GDP growth data for Q1 will be announced, showing limited growth of 0.1% on a quarterly basis and a slowdown in the annual growth rate to 0.2%.
- The Swedish Central Bank is expected to raise the policy interest rate by 25 basis points to 3.75% in response to persistently high inflation.
- Chinese official manufacturing PMI for June is expected to show a slight increase to 49, indicating a mild slowdown in the contraction of the sector. The non-manufacturing PMI is anticipated to decline to 53, indicating a mild slowdown in the non-manufacturing sectors.
- Bank of Japan (BOJ) Governor Ueda’s speech will be monitored on Wednesday.
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US Stock Market Ends Lower Amid Weak PMI Data
The release of June’s preliminary Purchasing Managers’ Index (PMI) for the manufacturing and services sectors signaled a weakening trend compared to the previous month, leading to a decline in Wall Street indices. Additionally, San Francisco Fed President expressed the view that two more interest rate hikes this year would be a reasonable estimate. She also emphasized the importance of proceeding with caution and a slower pace given the current rate hike trajectory and the need to reach a more appropriate level.
- US Stock Market Performance
The daily performance on Friday resulted in a 1.01% decline for the Nasdaq Composite Index (NDX: USN) , a 0.77% drop for the S&P 500 Index (SPX: USY) , and a 0.65% decrease for the Dow Jones Index (INDEXDJX: DJI).
- Currency and Commodity Markets
The US dollar index (DXY) ended the week with a 0.7% increase, reaching a level of 102.9. Brent crude oil (LCO07: USC) prices experienced a 3.6% decrease, closing the week at $73.9 per barrel.
- US Treasury Yields
The yield on the 10-year US Treasury note concluded the week with a 3 basis point decline, settling at 3.73%. Meanwhile, the 2-year Treasury yield, which is more sensitive to changes in monetary policy, ended the week at 4.74% after a 3 basis point increase.
- US Manufacturing and Services PMI Data
The focus in the US last week was on the release of the S&P Global PMI data for the manufacturing and services sectors, providing insights into the current state of economic activity.
In June, the manufacturing PMI unexpectedly declined from 48.4 to 46.3, indicating a faster pace of contraction in the sector. Conversely, the services PMI decreased slightly from 54.9 to 54.1, suggesting a mild slowdown in the sector’s growth. Despite the moderation in the services sector, demand remained strong, leading to the second-fastest expansion since April 2022.
- Upcoming Events
The key focus will be on the speeches by Federal Reserve Chair Powell on Wednesday and Thursday.
The final GDP growth figure for the first quarter and the release of the final Personal Consumption Expenditures (PCE) price indices, an important inflation indicator followed by the Fed, will take place on Thursday.
Friday will see the release of the PCE deflator data for May, along with personal income and spending figures. Other notable data releases include the Conference Board Consumer Confidence Index for June and the University of Michigan Consumer Sentiment Index final data.
Housing market data will include the S&P/Case-Shiller 20-City Home Price Index for April and new home sales for May, as well as pending home sales.
- US Economic Outlook
The US economy registered a growth rate of 2.1% in 2022. In the first quarter of this year, the annualized quarterly GDP growth rate was revised upward from 1.1% to 1.3%, surpassing expectations.
The final data for the first quarter’s annualized quarterly PCE price indices, including core, will be released on Thursday. The core PCE price index was revised upward from 4.9% to 5%, while the headline PCE price index remained steady at 4.2% in the first quarter, aligning with expectations.
- US Inflation Update: May PCE Deflator and Personal Income and Spending
On Friday, the focus will be on the May data for the PCE deflator (including core), a key indicator closely monitored by the Federal Reserve to track monthly price changes.
Additionally, the May figures for personal income and spending will be released. Earlier reports showed that the headline Consumer Price Index (CPI) for May slowed from 0.4% to 0.1% on a monthly basis, aligning with expectations. On an annual basis, it declined from 4.9% to 4%, reaching the lowest level since March 2021.
It is anticipated that in May, the monthly increase in the PCE deflator will slow from 0.4% to 0.2%, and on an annual basis, it will decline from 4.4% to 3.1%.
The core PCE deflator is expected to show a similar monthly increase of 0.4% and a year-on-year level of 4.7%. Furthermore, it is projected that personal income will increase by 0.3% on a monthly basis, while personal spending will decline from 0.8% to 0.2%.
- US Durable Goods Orders for May
The preliminary data on durable goods orders for May will be released tomorrow. In April, durable goods orders increased by 1.1% on a monthly basis.
- US Consumer Confidence Indexes: Conference Board and University of Michigan
On Tuesday, the Conference Board’s consumer confidence index for June will be published, followed by the final reading of the University of Michigan’s consumer confidence index on Friday. The Conference Board’s consumer confidence index for May experienced a modest decline from 103.7 to 102.3, which was lower than expectations.
The preliminary reading of the University of Michigan’s consumer confidence index for June surpassed expectations, rising from 59.2 to 63.9. This increase can be attributed to ongoing inflationary easing and the resolution of the debt ceiling issue, reaching the highest level in the past four months.
- US Employment Market Data: Weekly Jobless Claims
Thursday will bring the release of the weekly jobless claims data, providing insights into the employment market. The previous report showed that despite mild expectations for a decrease, the number of new jobless claims remained at 264,000, similar to the previous week. This level, while maintaining a low trajectory, represents the highest since October 2021.
- US Housing Market Data: S&P/Case-Shiller 20 City Composite Home Price Index and Pending Home Sales
On Tuesday, the April data for the S&P/Case-Shiller 20 City Composite Home Price Index will be released, along with the May figures for new home sales. Additionally, on Thursday, data on pending home sales, indicating the number of homes with completed sales contracts pending final transfer, will be published.
In March, the S&P/Case-Shiller 20-City Home Price Index showed a monthly increase of 0.5%, but experienced a decline of 1.1% on an annual basis, dropping from a 0.4% annual increase. This marked the first decline since May 2012.
It is expected that in April, the monthly growth rate of home prices will slow down from 0.5% to 0.4%, while the annual decline will increase from 1.2% to 2.6%.
New home sales, on the other hand, exceeded expectations with a monthly increase of 4.1% in April, recording a second consecutive month of growth. Pending home sales, which experienced a sharp decline of 5.2% in March, remained stagnant with no change in April. In May, a 0.2% monthly decrease is expected in pending home sales.
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European Market Focus: Manufacturing PMIs in Europe Indicate Increasing Contractionary Trend
In June, manufacturing PMIs across Europe continued their contractionary trend below the threshold level of 50, indicating an increase in the pace of contraction. Service PMIs, on the other hand, indicated a slowdown in the growth of the service sector as they transitioned from the expansion zone to the contraction zone in France and experienced a decline in other regions.
- ECB President Lagarde’s Speeches in European Markets
In Europe, the focus will be on the speeches of ECB President Lagarde on Monday, Tuesday, Wednesday, and Thursday. Additionally, the speeches of BoE Governor Bailey and BoE Chief Economist Pill on Wednesday will also be monitored.
- Germany and Eurozone CPI Data for June Awaited
On Thursday, Germany’s preliminary CPI data for June will be released, followed by the Eurozone’s CPI data on Friday. According to preliminary data, it is expected that Germany’s headline CPI will show a slight increase of 0.2% on a monthly basis in June, with a mild rise from 6.1% to 6.3% on an annual basis.
In the Eurozone, the headline CPI slowed down from a monthly increase of 0.6% in May to 0% and declined from 7% to 6.1% on an annual basis. The preliminary data suggests that in June, the headline CPI will increase to 0.3% on a monthly basis and decline from 6.1% to 5.6% on an annual basis.
The annual core CPI is also expected to experience a slight increase from 5.3% to 5.5% in June.
- IFO Business Climate Index in Germany to Reflect Economic Assessments
On Monday, the IFO Business Climate Index for June, reflecting the assessments of firms operating in manufacturing, construction, wholesale, and retail trade sectors in Germany, will be announced. It has been observed that high inflation in Europe and the continuation of interest rate hikes by the ECB have weakened the IFO indices. It is expected that the index will further decline from 91.7 to 90.6 in June.
- Eurozone and Germany Consumer Confidence Data to be Released
On Thursday, the Eurozone’s final consumer confidence data for June and Germany’s GfK consumer confidence data for July will be followed. The preliminary consumer confidence data for June in the Eurozone showed a partial recovery from -17.4 to -16.1, but it continued to remain in the negative territory due to the impact of ongoing interest rate hikes by the ECB.
In Germany, the GfK consumer confidence data for June increased from -25.8 to -24.2, continuing its eighth consecutive month of rise and reaching the highest level since April 2022. It is expected that consumer confidence will continue to remain weak in the negative territory, despite a partial recovery, due to the impact of the ECB’s interest rate hikes.
- UK’s First Quarter GDP Growth to be Released
On Friday, the final GDP growth data for the first quarter of this year will be announced in the UK. According to preliminary data, the UK economy showed limited growth of 0.1% on a quarterly basis in the first quarter, in line with expectations, while the annual growth rate slowed down from 0.6% to 0.2%, marking the lowest level since 2021.
- Swedish Central Bank Expected to Raise Interest Rates
The interest rate meeting of the Swedish Central Bank will be followed on Thursday. In its April meeting, the bank raised the policy interest rate by 50 basis points to 3.50%, citing persistently high inflation well above the target. This marked the highest level since December 2008. Additionally, it emphasized the importance of inflation significantly decreasing this year for confidence in achieving the inflation target, stating the need for further increases in the policy interest rate.
It is expected that the bank will raise the policy interest rate by 25 basis points to 3.75% at this week’s meeting.
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Chinese Manufacturing and Non-Manufacturing PMIs for June Awaited
In Asia, on Friday, the official manufacturing and non-manufacturing PMI data for June, which will provide signals about the state of the Chinese economy, will be monitored. In May, the official manufacturing PMI in China declined from 49.2 to 48.8, indicating an accelerated contraction in the manufacturing sector due to weak domestic and global demand.
The official non-manufacturing PMI, which provides insights into the performance of the service and construction sectors, also experienced a higher-than-expected decline, dropping from 56.4 to 54.5 in May.
In June, it is expected that the official manufacturing PMI will show a slight increase from 48.8 to 49, indicating a mild slowdown in the contraction of the manufacturing sector, while the official non-manufacturing PMI is anticipated to decline slightly from 54.5 to 53, indicating a slowdown in the non-manufacturing sectors.
Additionally, Bank of Japan (BOJ) Governor Ueda’s speech will be followed on Wednesday.