US PMI data to test strength of US economy in June
- S&P Global preliminary PMIs are expected to confirm ongoing expansion in the US private sector’s business activity in June.
- Survey details on inflation and employment will be scrutinized by market participants.
- EUR/USD needs to clear 1.0790-1.0800 to attract buyers.
S&P Global will issue flash estimates of the United States (US) Purchasing Managers Indexes (PMIs) for June, a monthly survey of business activity, on Friday. The survey is expected to show that the economic activity in the private sector continued to expand at a moderate pace.
In May, S&P Global Composite PMI improved to 54.5 from 51.3 in April. The Manufacturing PMI edged higher to 51.3 from 50.0, while the Services PMI climbed to 54.8 from 51.3. Assessing the survey’s findings, “the US economic upturn has accelerated again after two months of slower growth, with the early PMI data signaling the fastest expansion for just over two years in May,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.
Regarding the inflation dynamics, Williamson noted that selling price inflation ticked higher in May. “The main inflationary impetus is now coming from manufacturing rather than services, meaning rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed’s 2% target still seems elusive,” he elaborated further.
What to expect from the next S&P Global PMI report?
PMI surveys are widely accepted as forward-looking or leading indicators. As the Federal Reserve (Fed) clings to a data-dependent approach to policymaking, investors will pay close attention to PMI data heading into the weekend.
The S&P Global Manufacturing PMI is forecast to edge lower to 51.0 from 51.3 in May, and the Services PMI is expected to retreat to 53.7 from 54.8. A reading above 50.0 presents an expansion in the sector’s business activity.
When will June flash US S&P Global PMIs be released and how could they affect EUR/USD?
The S&P Global Manufacturing, Services and Composite PMI reports will be issued on Friday, June 21, at 13:45 GMT.
In case either the Manufacturing or the Services PMI unexpectedly falls below 50.0 and points to contraction, the initial market reaction could make it difficult for the US Dollar (USD) to find demand and help EUR/USD edge higher. On the other hand, the USD could gather strength if there is a positive surprise in either PMI print.
Focus will shift to the underlying details on employment and inflation developments if PMIs come in near analysts’ estimates. In case surveys highlight higher input inflation, investors could refrain from pricing in a Federal Reserve rate cut in September and trigger a leg lower in EUR/USD. A significant negative contribution to either PMI from employment could cause the USD to come under selling pressure and provide a boost to the pair.
FXStreet Analyst Yohay Elam thinks that upbeat PMI data would hurt Gold and support the US Dollar, while soft figures would have the opposite impact. “Stocks might follow the US Dollar if the data is weak – I expect investors to take profits off the table ahead of the weekend,” he adds.
In the meantime, Eren Sengezer, European Session Lead analyst at FXStreet, shares a brief technical outlook for EUR/USD:
“EUR/USD needs to climb above 1.0790-1.0800, where the 100-day and the 200-day Simple Moving Averages are located, and confirm that area as support to attract technical buyers. In this scenario, the pair could target 1.0900 (static level, psychological level) and 1.0950 (static level from March).”
“On the downside, sellers could take action with a drop below 1.0670 (Fibonacci 78.6% retracement of the uptrend from mid-April) and cause EUR/USD to slide toward 1.0600 (static level).”
Economic Indicator
S&P Global Services PMI
The S&P Global Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector. As the services sector dominates a large part of the economy, the Services PMI is an important indicator gauging the state of overall economic conditions. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for USD.
Next release: Fri Jun 21, 2024 13:45 (Prel)
Frequency: Monthly
Consensus: 53.7
Previous: 54.8
Source: S&P Global
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.