30 June 2022
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China PMIs show expansion in June

By Daniel Richards

  • China’s manufacturing PMI came in above the neutral 50-level in June but was still below the median forecast at 50.2. The services PMI surprised on the upside however at 54.7, well above the May reading of 47.8. This was the first time both indices registered expansion since February.  While activity is expected to recover in the coming months, Covid-19 restrictions are likely to remain a threat to any recovery in the event of a resurgence in cases.
  • In comments at the ECB conference in Portugal yesterday, central bankers reiterated their commitments to lower inflation, even at the risk of inducing a recession.  Fed Chair Powell was clear that they would “not allow a transition from a low inflation environment to a high inflation environment” but that he “hoped” that growth would remain positive, again saying that the US economy was strong enough to withstand tighter monetary policy. Christine Lagarde appeared to endorse what financial markets are pricing for the ECB policy rate, which is 2% by the end of next year. BoE governor Andrew Bailey said the MPC was focused on how inflation expectations are shaping wage negotiations, but warned that the UK was experiencing a sharper economic slowdown than other high-income countries and that inflation would likely remain higher for longer there. However, he noted that the BoE was ready to raise rates more aggressively, suggesting that a 0.5% hike may be on the table in August.
  • German inflation came in lower than forecast in the preliminary estimate for June, up just 0.1% m/m and 7.6% y/y, against expectations for a 0.4% m/m rise. The slowdown was attributed to policy measures including cuts to road taxes and cheaper options for public transport. The removal of a renewable levy on power bills may lead to another modest inflation reading in July, but underlying inflationary pressures remain high, with food prices rising 12.7% y/y in Germany this month.
  • US Q1 GDP was revised lower to -1.6% q/q annualized. Personal consumption was revised down sharply to just 1.8% from 3.1% in the second reading, while private investment was revised higher to 5.0%. Core PCE, the Fed’s preferred measure of inflation, was revised slightly higher to 5.2% in Q1 from a previous estimate of 5.1%, well above the 2% target.
  • Japan’s industrial production fell by more than expected in May, down -7.2% m/m and -2.8% y/y. Analysts had forecast a 4.2% y/y gain. The decline was attributed to the lagged impact of China’s lockdown and the impact on supply chains for car manufacturing and machinery. Production levels are the lowest since summer 2020 and will likely weigh on Japan’s Q2 GDP.     

Today’s Economic Data and Events

  • 10:00 UK Nationwide house prices (Jun) forecast 0.5% m/m and 10.8% y/y
  • 11:55 GE unemployment (Jun) forecast -5k
  • 16:30 US personal income and spending (May) forecast 0.5% and 0.4% respectively
  • 16:30 US initial jobless claims (Jun 25) forecast 229k

Fixed Income

  • Benchmark government bonds were stronger across the board as markets price in the threat of a recession in the near-term while balancing against central bankers that are abandoning the assumption that the disinflationary drivers of the pre-pandemic period will return. Yields on the 2yr UST fell 7ps to 3.0385% while the 10yr UST yield dropped by 8bps to 3.0891%.
  • Moves were similar in European bond markets with the 2yr schatz yield down 10bps to 0.816% and the 10yr bund yield falling by almost 11bps to 1.514%. Gilt yields also pushed lower, down by 8bps on the 10yr to 2.379%.            


  • Currency markets once again swung the risk-off safety of the US dollar with losses spread across all major peer currencies. EURUSD dropped by 0.7% to 1.0442 while GBPUSD sank by almost 0.5% to 1.2124. USDJPY added 0.33% to close at 136.59. The threat of a recession materializing in the next six to 12 months will help to keep a bid under the dollar even if there are micro-rallies in other currencies pairs.
  • Commodity currencies weren’t spared the sell-off overnight with USDCAD adding 0.14% to 1.2893 while AUDUSD fell by 0.4% to 0.688 and NZDUDS dropped 0.3% to 0.6221.


  • There was little clear direction from US stock markets yesterday as the S&P 500 dropped -0.1%, the NASDAQ closed flat, and the Dow Jones gained 0.3%. However, as the end of the month arrives all three are heading for their worst quarter since the peak of the pandemic hit in March 2020.
  • European equities looked weaker earlier in the day as policymakers talked up recession risks. The DAX ended down -1.7%, while the CAC dropped -0.9% and the FTSE 100 -0.2%.
  • Locally, the Tadawul closed up 0.5% but the DFM (-0.2%) and the ADX (-0.4%) both ended the day lower.


  • Oil prices remain at risk of recession fears in the near term, dropping by 1.5% in the Brent market overnight to USD 116.26/b while WTI fell by 1.8% to USD 109.78/b. OPEC convened yesterday but gave no indication on oil production policy, instead waiting until their meeting with the rest of the OPEC+ alliance to give a signal as to what they will do once their production adjustment agreement comes to an end.
  • Data from the EIA has resumed publication after an interruption with commercial crude stockpiles falling 2.8m bbl in the week ending June 24. Gasoline stocks did move higher, however. Oil production nudged higher, up by 100k b/d to 12.1m b/d while product supplied was steady.

Click here for charts and tables

Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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