Market Update – 5th July 2023.

Manufacturing PMI data released on Monday came in lacklustre for both the Eurozone and the UK. In relation to PMI, a figure above 50 indicates an expansion while anything below indicates a contraction. In Europe, PMI was revised downwards to 43.4 in June, below forecasts of 43.6, and lower than May’s 44.8 reading. For analysts, this latest reading is indicative of the rampant rate rise cycle the European Central Bank (ECB) have undertaken of late in their fight to bring sticky inflation back to its 2% target. While the ECB has already added 400 basis points to interest rates and are likely to add a further 25 in June, this slowing of market conditions can only mean that the spending power of both companies and consumers has been knocked and the impact of interest rate hikes keenly felt.

Over in our back yard, the UK’s latest PMI reading also indicated another contraction; the 11th consecutive one and also the lowest figure in six months. June’s figure came in at 46.5, down from 47.1 in May, although this was revised up from an earlier reading of 46.2. Output levels, new orders, and employment all experienced additional declines. The persisting challenges stemmed from consumer uncertainty and subdued conditions in both domestic and export markets, which have negatively impacted order books. However, the UK’s PMI perhaps tells a more positive story in that although its outputs contracted there were signs of alleviating price and supply chain pressures.

In the US, observance of the 4th of July Independence Day meant markets remained closed and news from the region has been minimal. Investors are still mulling over the Fed’s most recent commentary and eagerly awaiting the minutes due this afternoon to see whether they will once again need to hike rates to curb inflation.

Looking at China, Manufacturing PMI disappointed as factory expansion lost momentum in June. Looking at the latest services PMI data, it came in below expectations at 53.9, but marking the 6th straight month of expansion, albeit at a softer pace. The data indicated that for the first time in five months, business sentiment enjoyed a boost within the context of more robust economic conditions and increased employment to push forward expansion.

Still to come this week we have some fresh US data such as factory orders, balance of trade data as well as unemployment and participation rates.

Investment Management Team

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