Written Commentary
- Manufacturing PMIs/ISM and Japan Q2 Tankan surveys and Eurozone CPI dominate schedule at start of new month and quarter: UK credit aggregates, US Auto Sales and Construction spending also due; German Budget proposal; light schedule of events ahead of US Independence Day holiday weekend
- Manufacturing PMIs: Eurozone, UK and US likely to echo downbeat message on sector prospects from Asia ex-China
- Widening credit spread pressures the big contrast to end of month and quarter rebalancing flows in Q1, signalling financial conditions as big stumbling block to central bank policy tightening
EVENTS PREVIEW
A new month and quarter begins with a very busy run of statistics, dominated by Manufacturing PMIs/ISM and Japan’s Q2 Tankan surveys along with Eurozone CPI. But with the US heading into a long holiday weekend for Independence Day on Monday, price action may be rather muted. The UK has monetary and credit aggregates and with household finances under pressure, there will be particular focus on the growth in credit card spending, which surged in April, with overall Consumer Credit expected to ease slightly, while Mortgage Approvals are seen dipping to 64K from 66K. The US also looks to Auto Sales and Construction Spending, and Brazil has monthly trade data, and there are Japan’s Tokyo CPI and South Korea’s trade data to digest. While govt bond yields eased over the week, credit spreads continue to push wider, signalling an increasingly sharp tightening of financial conditions, and standing in sharp contrast to the ‘everything’ rally at the end of Q1 – see charts. Market liquidity conditions remain appalling, with the 17% collapse in US NatGas prices (see chart) yesterday being yet another example of the lack of market depth in all asset classes, and on top of the myriad of economic uncertainties, and fears about the impact of central banks tightening monetary policy, in many cases aggressively, this can only serve to sustain very high levels of volatility. The lesson for central banks, who seem increasingly determined to get a nomination in this year’s Darwin awards, is that adopting reactive rather than proactive policy is very misguided in an economic environment that is very short on medium-term visibility; they are now reaping the reward for complacency and being mired in the strictures of ‘laissez-faire’ economic group think that has prevailed for much too long.
For a discussion on where central banks are in terms of the rates vs. inflation and growth challenge, please see this interview from CNBC Capital Connections yesterday: https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fcnbcmediahub.com%2Fitem%2Ffe7520db-85c0-4e1b-85ea-e69df809e638&data=05%7C01%7CAlfred.Michelin%40admisi.com%7C56d36171a1d342a4773e08da5b3826ee%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637922594008384053%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=ufXdf%2FM7dX0luoDtow7ez3gcSwbifIwo7hIUemAhlWU%3D&reserved=0
** World – June Manufacturing PMIs **
China’s Caixin Manufacturing PMI proved to be both much better than the official NBS measure and market expectations, as well as offering a counter to the broad array of sluggish readings from the rest of Asia, and a disappointing Japan Q2 Tankan, the latter above all downbeat on outlooks. Eurozone, UK and Americas PMI are unlikely to dispel the very clear impression that a fairly sharp loss of momentum is being witnessed in the manufacturing sector, with energy and input price pressures, easing but continued supply chain pressures and rising labour costs all starting to squeeze on profits and engendering a degree of demand destruction.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
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© 2021 ADM Investor Services International Limited.
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