US ISM survey disappoints in June

The US ISM manufacturing survey fell to 48.5 in June, down from 48.7 the previous month and missing the predicted 49.1. The measure stands in contrast to the S&P Global manufacturing PMI which was confirmed at an expansionary 51.6 for June yesterday. This marked the third month in a row that the ISM survey has been in contractionary sub-50 territory, although the new orders subcomponent contracted at a much slower pace, coming in at 49.3, from 45.4 in May. Further, and encouragingly for inflation watchers, the prices paid component of the ISM survey fell to 52.1, down from 57.0 previously, marking the lowest level this year. Employment contracted modestly at 49.3, compared to an expansionary 51.1 in May, potentially signalling some labour market softening ahead of the NFP release due on Friday.

German CPI inflation came in at 2.5% y/y in June, in line with predictions and down from 2.8% the previous month. On a monthly basis, prices were up 0.2%, as predicted and unchanged from May. This follows on from a slowdown recorded in French inflation in June as well, with the composite Eurozone figure due for release tomorrow.

Today’s Economic Data and Events

13:00 Eurozone CPI inflation, % y/y, June. Forecast: 2.5%

13:00 Eurozone unemployment rate, June. Forecast: 6.4%

Fixed Income

• There was little change in short-dated USTs to start the week, with yields on the 2yr closing up just marginally at 4.7556%. However, 2s10s spread widened as the 10yr yield added 7bps to 4.4613% as a Trump victory in November is increasingly priced in, with likely implications for inflationary policies.

• Similarly in France, the prospect of a higher-spending government after the second-round of parliamentary elections last week has put pressure on OATs. The 2yr yield added 5bps to 3.168% yesterday, while the 10yr also closed up 5bps at 3.346%.

FX

• The dollar gained marginally against its basket of peers on the first day of the week, with the DXY index closing up 0.03%.
• The greenback climbed against most majors, adding 0.4% against JPY which closed at 161.46, while the commodity currencies all traded lower with the AUD, the NZD, and the CAD losing 0.2%, 0.3%, and 0.4% respectively.

• By contrast, EUR closed up 0.3% against USD as concerns over the strength of the victory for the RN in France were tempered a little as results came in. In the UK, GBP climbed marginally, adding 0.04%.

Equities

• In France, the CAC index gained 1.1% yesterday as the right-wing RN party did not do quite as well on the first round of voting in parliamentary elections as had been anticipated. However, the index pared its gains after initially opening 2% higher. Other European indices gained by a lesser margin on the day, with the composite STOXX 600 and Germany’s DAX adding ­­0.3% . In the UK, the FTSE 100 closed flat.
• Gains earlier in the day in Asia were more modest. The Hang Seng closed flat while the Nikkei added 0.1%. The Shanghai Composite was an outperformer, adding 0.9% as the Caixin manufacturing PMI survey surprise to the upside.
• In the US, the Dow Jones, the S&P 500, and the NASDAQ added 0.1%, 0.3%, and 0.8% respectively.
• Locally, the DFM gained 0.7% while the ADX closed flat.

Commodities

• There were further gains for global oil prices last night, but as so ever this year, this has been largely headline driven. Brent futures rose 0.2% yesterday to close at USD 86.6/b, and has added a further 0.3% this morning, while WTI has seen stronger gains of 2.3% yesterday, closing at USD 83.4/b. However, for WTI the threat of Hurricane Beryl was the main factor behind the spike, while Brent was supported by renewed concerns around geopolitical tensions in the wider Middle East.