25 July 2022
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Global PMIs show slowdown underway

By Edward Bell

  • PMI numbers for the Eurozone showed a considerable worsening of the economy in July with the provisional composite PMI coming int at 49.4, down from 52 a month earlier and below market expectations. The weak numbers follow the first interest rate hike from the European Central Bank since 2011 when the ECB raised rates by 50bps. For the major economies, France managed to avoid a contraction in the PMI survey in July as services slipped to 52.1, offsetting a drop to 49.6 in manufacturing and keeping the composite number just barely above 50. For Germany, however, the composite fell to 48, down from 51.3 as month earlier, as both manufacturing and services components dropped to 49.2.
  • In the UK, the PMI numbers managed to hold up relatively well to peers in the Eurozone. Manufacturing dropped marginally to 52.2 from 52.8 a month earlier while the services component saw a steeper drop, to 53.3 from 54.3 in June. On aggregate the composite number of 52.8 for July shows that the UK economy has probably moved out of the slump at the start of the second quarter. We expect the Bank of England will hike rates by 50bps at their next MPC meeting in early August.
  • The US PMI for July showed a sharp drop month on month, with the composite figure falling to 47.5 from 52.3 a month earlier. That was the first print below the 50 level demarcating expansion and contraction since June 2020 when the US economy was in the grip of the Covid-19 pandemic. The services PMI led the way lower, falling to 47 in the July reading while manufacturing remains in the positive side of the ledger at 52.3. Input prices are showing some signs of easing but so did output prices while future expectations worsened. On top of signs of a considerable slowdown starting in the housing market, the weak PMI numbers may trouble the Federal Reserve this week but we still expect them to hike by at least 75bps.

Today’s Economic Data and Events

  • 11:00 TU Capacity utilization Jul
  • 12:00 GE IFO Business climate July: forecast 90.4
  • 16:30 US Chicago Fed activity index June
  • 18:30 US Dallas Fed manufacturing activity July: forecast -22

Fixed Income

  • Further signs of weakness in the US economy helped to push Treasuries higher last week, even as the Fed prepares to hike at this week’s FOMC. Yields on the 2yr UST fell 15bps over the course of last week, settling at 2.97%, including an 11bps drop on Friday alone. On the longer-end of the curve the 10yr yield fell by 16bps to 2.7504% with a 12bps drop on Friday. Market pricing remains inline for a 75bps hike this week with another 50bps lined up for September.
  • European bond markets also closed the week stronger as the weak economic data—see the PMIs above—puts paid to the hawkish tone introduced from the ECB earlier in the week. Yields on the 2yr Schatz settled more than 3bps lower last week but plunged on Friday by almost 26bps to 0.358% while the 10yr bund yield fell 19bps to 1.023%. Italian yields also dropped at the end of last week, falling by 23bps on the 10yr to 3.293%.
  • Emerging market bonds closed the week on a relatively stronger footing as recessionary signals lead investors to think central bankers may hold off somewhat on normalizing policy. South African 10yr yields fell 17bps to 10.988% while Indian 10yr bonds fell by 3bps to 7.415%. Turkish bonds settled the week at 16.7%. Pakistani USD-bonds slumped last week as concerns mount over its financing requirements. Yields on the USD denominated sukuk falling due in December this year rose by 9bps to more than 42%
  • Central bank activity this week is dominated by the Federal Reserve where the FOMC meets on July 27th. We expect 75bps of hikes, taking the Federal funds rate to 2.5% on the upper band although there is a moderate upside risk that the Fed will move by a full 100bps at this meeting.


  • The US dollar fell last week, its first weekly drop since the end of June as markets begin to price in an element of dovishness from the Federal Reserve, even as it is still on track to hike by at least 75bps this week. A larger-than-expected hike from the European Central Bank helped to lift EURUSD by 1.3% last week to close at 1.0213 through the risk of a retest of parity and below is still present. GBPUSD also showed a gain of more than 1.2% last week to settle just under the 1.20 level as still fast inflation shores up support for a 50bps hike from the Bank of England in early August while USDJPY dropped by 1.8% to 136.12 even as the Bank of Japan remains on an accommodative footing.
  • Commodity currencies also had a strong rally last week with USDCAD down by 0.9% to 1.2916 while AUDUSD rose by 2% to 0.6929 and NZDUSD added 1.6% to 0.6266.


  • Equity markets managed to squeak out a week of gains last week with US markets moving comfortably higher. The S&P 500 added 2.6% while the Dow Jones came in just under a 2% gain and the NASDAQ added 3.3%. In Europe equities were likewise broadly higher, even amid negative data. The FTSE rallied by 1.6% and the EuroStoxx 50 added 3.4%.
  • In Asian markets the Nikkei rose by 4.2% last week while the Hang Seng gained 1.5%.


  • Oil prices ended the week mixed with a 2% gain in Brent to USD 103.20/b offset by a near 3% drop in WTI at USD 94.70/b. The prospect of tighter US monetary conditions amid a recessionary narrative is a negative mix for oil prices and there is likely to be some substantial volatility until a clearer fundamental picture takes hold of markets.
  • Time spreads though still point to a substantially tight market. In the Brent market, the 1-2 month spread closed at a backwardation of USD 4.82/b, up from around USD 4/b at the end of last week, while the same spread in the WTI market moved lower, but was still at a wide backwardation of USD 2.27/b.
  • The US drilling rig count stabilized last week at 599 rigs focusing on oil. A challenging investment outlook—uncertainty over demand, higher borrowing costs, circumspect investors—are all weighing on the outlook for upstream growth in the US even as global demand presses for higher oil output.

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Written By

Edward Bell Head of Market Economics

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