Market Insight – PMI data worsens

Risk-off sentiment continues to prevail this morning after weaker than expected PMI manufacturing and services data from the United Kingdom and Europe.

Stocks are in the red across Europe and the British pound and the euro currency are diving in the foreign exchange market as traders fear a slowing of economic activity.

Futures are down across the board, and it is likely that the market will see redder if the United States also release more PMI data this afternoon showing a decrease in activity.

Breaking down the data, the UK Manufacturing PMI came in at 46.2 vs 46.8 expected, against the prior 47.1 reading and the Composite PMI was at 52.8 vs 53.6 expected.

The manufacturing sector continues to underperform while activity in the services sector is also dampened by rising price pressures, which marks a contrast seen in the former.

S&P Global notes that “June’s flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring and looks set to weaken further in the months ahead.”

There was a cooling in inflation pressures but a weakening in demand conditions according to the EU PMI data. The Manufacturing PMI came in at 43.6 vs 44.8 expected.

HCOB notes that “If the ECB only had to control goods prices, then Frankfurt would toast the end of inflation, because even in June the PMI survey shows that purchasing and selling prices have fallen significantly.”

And, Moreover, given the recession in manufacturing indicated by the PMI, one would start with interest rate cuts. But this picture is incomplete. In the more important part of the economy, the private services sector, prices continue to rise, and that’s why the core rate of inflation has been so slow to decline.