US PMIs Surpass Expectations, Contrast Sharp Declines in Europe

US PMIs Surpass Expectations, Contrast Sharp Declines in Europe 

Following this morning's disappointing European PMI data, the preliminary June US PMI figures were anticipated to see a slight decline but still remain in expansion territory (above 50) for both manufacturing and services

Contrary to expectations given the poor US macroeconomic data, the soft survey data exceeded forecasts with Manufacturing PMI reaching 51.7, up from 51.3 prior and above the 51.0 expected, and Services PMI hitting a 26-month high at 55.1, up from 54.8 prior and above the 54.0 expected

The US Services PMI exceeded all analysts' predictions, creating a stark contrast with the global trend

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented that the preliminary PMI data indicates the fastest economic growth in over two years for June, suggesting a strong end to the second quarter with cooling inflation pressures

The PMI level suggests the economy is growing at an annualized rate just under 2.5 percent. The upturn is widespread, driven by rising demand. The service sector leads this growth due to strong domestic spending, but manufacturing is also recovering, experiencing its best growth period in two years

The survey also shows positive news on job gains, with increased hiring driven by improved business optimism

Meanwhile, selling price inflation has eased again after a rise in May, reaching one of the lowest levels in the past four years, aligning with the Fed's 2 percent inflation target

This scenario does not support the case for a Fed rate cut

Earlier today, Europe's PMIs fell unexpectedly and significantly, suggesting that the ECB may have been too slow in cutting rates. The Euro area composite flash PMI dropped by 1.3 points to 50.8, missing the consensus of 52.5. Analysts noted that this should caution the ECB in further rate cuts

According to Goldman Sachs, the slowdown in the Euro area composite index was broad-based across sectors, particularly in manufacturing, which saw the output index drop by 3.4 points to 46.0

Here's a snapshot of the reports

Euro Area Composite PMI (June, Flash) 50.8, consensus 52.5, previous 52.2 Euro Area Manufacturing PMI (June, Flash) 45.6, consensus 47.9, previous 47.3 Euro Area Services PMI (June, Flash) 52.6, consensus 53.4, previous 53.2 France Composite PMI (June, Flash) 48.2, consensus 49.4, previous 48.9 Germany Composite PMI (June, Flash) 50.6, consensus 52.7, previous 52.4 UK Composite PMI (June, Flash) 51.7, consensus 53.0, previous 53.0

The decline in the Euro area index was widespread

France The composite PMI fell to 48.2, below consensus, with the services index at 48.8 and manufacturing at 45.3 Germany The composite PMI decreased to 50.6, below consensus, with services at 53.5 and manufacturing at 43.4 Periphery The composite PMI dropped to 52.8, driven by declines in both sectors, particularly manufacturing

In the UK, the composite PMI declined to 51.7, below consensus, due to a slowdown in services activity, partially offset by a slight improvement in manufacturing

Goldman Sachs identified three key takeaways

Loss of momentum in both the Euro area and UK, with Q2 growth weaker than early in the year Different drivers of the slowdown, with the UK showing strong manufacturing activity, unlike the broad-based decline in Euro area manufacturing Divergent PMI price components, with benign price developments in the Euro area and stronger UK prices driven by higher demand expectations

The poor PMI data led to a drop in European bond yields and the euro, while the USD strengthened. Despite expectations of more QE, both gold and cryptocurrencies fell to session lows, likely to reverse once selling pressures ease