24 June 2022
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PMI surveys indicate global slowdown

By Edward Bell

  • PMI surveys for the Eurozone pointed to a sharp economic decline in the private sector, with actual readings falling considerably below the month prior and market estimates. France’s manufacturing PMI fell to 51.0vfrom 54.6, services to 54.4 from 58.3 , bringing the composite measure –to 52.8 from 57.0. Readings from Germany declined as well but not quite as dramatically, with manufacturing figures falling to 52.0 from 54.8, services to 52.4 from 55.0 and the composite level to 51.3 from 53.7. This trend continued across the Eurozone as a whole, as manufacturing fell to 52.0 from 54.6, services to 52.8 from 56.1 , bringing the composite for June to 51.9 from 54.8 a month earlier. Rising inflation, supply chain issues and concerns over energy continue to hamper the region. The slowing of the Eurozone economy highlights the risks for the ECB in moving too quickly in addressing inflation.
  • UK manufacturing fell to 53.4 from 54.6, just slightly lower than the projected 53.6, but services stayed the same at 53.4, which in turn helped the composite index remain unchanged as well at 53.1. These figures are unlikely to alleviate major concerns for businesses or the BoE as the economic outlook looks likely to deteriorate even further. Like past PMI prints, wage and input costs remain a drag on business activity and the prospect of rates moving higher over the next several months along with a weaker pound will likely weigh on future readings.
  • In the US, the composite PMI for June fell to 51.2, down from 53.6 previously and its lowest reading since January this year. While the numbers are still showing growth, they are sharply lower than the last several data prints. The manufacturing component fell to 52.4 while services slipped to 51.6. Firms in the survey reported a drop-off in demand as consumers in the US reel from rising costs while higher interest rates, supply chain issues and uncertainty over demand are all weighing on the outlook.
  • Dubai’s economy grew by 6.2% in 2021 and by 5.9% in the first quarter of 2022, according to a statement from the Dubai Executive Council. In Q1 2022, transport and warehouses rose by more than 40% y/y while hospitality also help to push GDP numbers higher, likely on the back of Expo 2020 supporting tourism flows in the first few months of the year. We had expected growth of around 5.5% for 2021 and are expecting a slower pace this year of around 4.5% thanks to the headwinds of slower global growth, higher interest rates and a strong US dollar.
  • The Turkish central bank kept its one-week repo rate on hold at 14.0% at its June MPC meeting yesterday, in line with expectations and marking the fifth straight meeting with no change since the cumulative 500bps of cuts enacted through the second half of 2021. With headline CPI inflation at 73.5% at the May print, this leaves real interest rates deeply in negative territory. The bank’s communiqué attributed the high levels of inflation to rising energy, food and agricultural commodity prices and holds to its view that disinflation will take hold due to base effects and ‘on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability.’ As such, it said it decided to leave the policy rate unchanged as it pursues its stated policy of liraization. Not hiking in the face of high levels of inflation makes the TCMB a global outlier at present.
  • The Central Bank of Egypt also left its benchmark interest rates unchanged yesterday, confounding expectations of another hike. This leaves the overnight deposit rate at 11.25%, lower than recent inflation prints which saw y/y CPI inflation rise to 13.5% last month. However, the bank noted that the pace of acceleration had slowed and that much of the price pressures were coming from exogenous shocks related to the conflict in Ukraine which are ‘outside the scope of monetary policy and yet may lead to transitory deviations from pre-announced target rates.’ The bank also stated that real GDP growth in Q1 was 5.4% y/y, down from 8.3% the previous quarter and representing a normalisation from the pandemic crisis.
  • Morocco and the IMF are in talks for a flexible credit line, according to media reports. Any programme from the fund would come ahead of another bond issue from Morocco which the central bank is reportedly aiming for at the end of this year.

Today’s Economic Data and Events

  • 10:00 UK retail sales y/y May: forecast -4.5%
  • 12:00 GE IFO business climate June: forecast 92.8
  • 18:00 US University of Michigan sentiment June (f): forecast 50.2
  • 18:00 US New home sales

Fixed Income

  • Benchmark government bonds extended their rally overnight as recession fears take hold of markets. Yields on the 2yr UST fell by 4bps to 3.0145% while the 10yr yield dropped b almost 7bps to 3.087%. the drop in the Eurozone PMI numbers for June helped to spark a sharp rally in the bund market with yields on 2yr German bonds down more than 24bps to 0.797% while the 10yr bund yield fell 21bps to 1.425%. In the UK there were similar outsized moves with the 10yr gilt yield down by 18bps to 2.313%.
  • The UAE federal government priced a USD 1.75bn 10yr bond at 100bps over US Treasuries and a USD 1.25bn 30yr at 175bps over. Both bonds came in tighter than initial guidance, suggesting that there was strong demand for the issuance.
  • Fitch affirmed their ‘AA-‘ rating on Taqa with a stable outlook with Taqa’s “links to the government of Abu Dhabi” helping to support the rating.


  • Currency markets showed a move to risk-off positions with the dollar rising against most peers. EURUSD dropped by 0.4% to 1.0523 while GBPUSD close relatively stable albeit with a downward bias. USDJPY fell by almost 1% to 134.95.
  • Commodity currencies settled weaker across the board. USDCAD added 0.39% as recession fears gnaw at the prospect for sustained energy demand, closing at 1.2996. AUDUSD fell by 0.4% to 0.6897 while NZDUSD dropped another 0.16% to 0.6275.


  • Equity markets enjoyed a bout of risk-on sentiment on Thursday. In the US, all three major indices closed higher, as the Dow Jones, the S&P 500 and the NASDAQ gained 0.6%, 1.0% and 1.6% respectively. Nevertheless, they remain down -15.6%, -20.4% and -28.2% ytd.
  • Within the region, local indices were under pressure. The Tadawul closed down modestly at -0.1% while the ADC (-0.6%) and the DFM (-1.1%) saw bigger losses. By contrast to US markets, however, and most major indices globally, all three remain higher than they were at the start of the year.


  • Oil prices fell a second day running thanks to rising concern of a recession hitting major markets. Brent futures closed down 1.5% to USD 110.05/b while WTI fell by 1.8% to USD 104.27/b. The weekly EIA report on US inventories and production has reportedly been delaying owing to a power issue.

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Written By

Edward Bell Head of Market Economics

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