July 25, 2022

Daily Report 25/07/2022

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The UK PMI manufacturing index edged lower to a 25-month low of 52.2 for June from 52.8 previously and was in line with consensus forecasts. The services-sector index also declined to a 17-month low of 53.3 from 54.3 but was slightly above expectations of 52.9. New orders increased on the month while business optimism improved only marginally from 25-month lows recorded the previous month. There was a slight easing of upward pressure on costs and the increase in prices charged by companies also moderated as weaker demand in the economy limited scope for companies to raise prices. The data overall provided slight relief, although there were still important reservations over the outlook. Markets will monitor economic proposals from the two Conservative Party leadership contenders with risk trends also likely to be a key element.

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The French PMI manufacturing index dipped into contraction territory for June and the services-sector reading was slightly below expectations. Both German readings were below consensus forecasts and both also registered contraction for the month. The Euro-Zone manufacturing index declined to a 25-month low of 49.6 from 52.1 previously and below forecasts of 51.0. The services-sector index dipped to a 15-month low of 50.6 from 53.0 previously and also below expectations of 52.0. New orders declined on the month and business expectations also declined sharply to the lowest level since May 2020. There was an easing of cost pressures, especially in manufacturing and the increase in selling prices eased slightly, although increases were still very rapid in an historical context. The data increased fears over the Euro-Zone economy with a particular focus on Germany and the 10-year yield declined to a 7-week low below 1.05%. The German Bundesbank stated that the economy will remain weak in the third quarter and inflation is likely to spike again after September as subsidies expire.

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US Treasury futures posted significant gains into Friday’s New York with the 10-year yield declining to 2.82% while the 2-year yield dipped to near 3.00%. The US PMI manufacturing index edged lower to a 24-month low of 52.3 for June from 52.7 previously, but slightly above consensus forecasts. The services-sector index dipped sharply to a 26-month low of 47.0 from 52.7 previously and well below consensus forecasts of 52.6. New orders growth was subdued while employment growth was weak with a mixture of demand and supply problems. Although cost pressures remained strong, there was a slower rate of increase with selling prices increasing at the slowest rate since March 2021.

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