June 26, 2023

Daily Report 26/06/2023

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The latest UK PMI business confidence data recorded a decline in the manufacturing index to a 6-month low of 46.2 for June from 47.1 previously and below consensus forecasts of 46.8. The services-sector index also retreated to a 3-month low of 53.7 from 55.2 and below expectations of 54.8. Total private sector input cost inflation was the weakest since February 2021, but the rate of increase in prices charged eased only slightly in June. Primarily, this reflected further strong price increases in the services sector with upward pressure on wages again the principal culprit. The data maintained reservations surrounding the outlook and reinforced concerns that the Bank of England would have to be even more aggressive to bring service-sector inflation under control. Yields moved higher with the 2-year yield at fresh 15-year high near 5.15%, although Sterling failed to benefit.

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The latest French and German PMI releases were all weaker than expected with a notable surprise that French services dipped into contraction territory for June. The overall Euro-Zone PMI business confidence data for June recorded a decline in the manufacturing index to a 37-month low of 43.6 for June from 44.8 the previous month and compared with an unchanged reading for the month. The services-sector index also retreated to a 5-month low of 52.4 for the month from 55.1 previously and well below expectations of 54.5. Input costs rose at the slowest rate since December 2020 and average selling prices for goods and services rose at the weakest rate since March 2021. The data will reinforce near-term unease surrounding the Euro-Zone outlook. At this stage, the ECB has maintained a hawkish policy stance and is expecting to increase interest rates further at the July policy meeting. There will, however, be increased doubts over the central bank stance if the economy deteriorates further and inflation pressures appear to ease.

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18.30 Christine Lagarde Speech

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The US PMI manufacturing index dipped to a 6-month low of 46.3 for June from 48.4 previously and below expectation of 48.5. The services-sector index edged lower to a 2-month low of 54.1 from 54.9 and in line with expectations. Within the data, overall selling prices increased at the slowest rate since October 2020. Manufacturing prices increased at the slowest rate for three years with services-sector increases at 5-month lows. San Francisco Fed President Daly stated that the risk over-tightening and under-tightening are about balanced while two more rate hikes is a reasonable projection.

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