Big Day of PMIs Ahead

In focus today

In the euro area, June flash PMIs are released. Most respondents will likely have answered after the US-Iran deal, yet the impact of lower oil prices is unlikely to already show up in activity data. We expect manufacturing to edge down to 50.9 (May: 51.6), while we expect services to see a modest improvement to 48.8 (May: 47.7), though still below 50 indicating contraction. The improvement in services is expected to be partially driven by French data correcting from particularly low levels.

June flash PMIs are also released in the UK. PMIs have generally held up well in recent months, but services slowed significantly in May, dropping to 49.3 from 52.7 in April. It will be interesting to see whether this slowdown in services continues.

In the US, manufacturing and services June flash PMIs are expected to remain above the 50 level, suggesting that the US economy continues to hold up well. Markets expect manufacturing to edge down slightly to 54.6 (May: 55.1), while services are expected to tick up to 51.0 (May: 50.7).

In Denmark, the June business sentiment indicator is released. May’s reading saw a slight decline to 104.1 from 105.5, still above the historical average of 100. The indicator pointed to moderate growth, and companies continue to expect net hiring in the coming months, suggesting no clear signs of an energy crisis in the latest data.

The National Bank of Hungary is expected to cut rates by 25bp to 6.00%, following signals of easing at its last meeting.

Economic and market news

What happened overnight

In Japan, June flash PMIs came in with manufacturing rising to 54.9 (May: 54.5) and services rebounding to 51.8 (May: 50.0). New orders accelerated to their fastest pace in more than four years, partly driven by stock-building amid war-related supply and price concerns. Input and output prices eased slightly but remain near their highest levels since late 2022, driven by continued elevated energy, fuel and raw material costs.

What happened yesterday

In the UK, Prime Minister Keir Starmer announced his resignation. Nominations for his replacement open on 9 July, with a new leader expected to be in place before parliament returns in September, making it the seventh prime minister in a decade. Andy Burnham is the clear frontrunner to take over after his decisive by-election victory last Friday, with his succession looking near certain after his main rival, Wes Streeting, confirmed he would not contest the leadership. Should Burnham succeed, the key market focus will shift to who takes over as Chancellor of the Exchequer, the UK’s finance minister. Current chancellor Rachel Reeves has been favoured by markets for her commitment to fiscal rules, and previous speculation around her departure triggered a significant rise in UK yields. Sterling and gilts were little moved on the news of Starmer’s resignation, which markets had widely anticipated.

Euro area consumer confidence rose broadly as expected to -17.7 in June (cons: -18.0, prior: -19.0), though it remains well below pre-war levels and the historical average. The survey period ran from 1 to 19 June, meaning the US-Iran deal and subsequent drop in oil prices are likely not fully reflected. While weak confidence is expected to continue weighing on spending growth, the relationship between how consumers feel and how they act has been less reliable in recent years.

In Denmark, consumer confidence for June rose sharply to -14.0 (May: -19.8). The improvement was primarily driven by a more positive view of Denmark’s current and future economic situation, as well as improved expectations for household finances. Inflation expectations also fell markedly for the second consecutive month, likely reflecting a significant drop in food prices of 1.3% m/m in May. Despite the recovery, consumer confidence remains low, with households continuing to save a large share of their income rather than increase spending.

Equities: Global equities rose yesterday, but the headline masked an extreme dispersion beneath the surface. The US was dragged lower by what many would instinctively call Big Tech, but the real pressure came from consumer-facing sectors and, not least, communication services, including media. The heavy media names did much of the damage. To put yesterday’s US session in perspective, eight of the 11 S&P 500 sectors closed higher and small caps outperformed, illustrating just how sector-specific the rotation was.

Sentiment was also hit by the sharp fall in SpaceX, where it is remarkable to see a company of that size display this degree of volatility so early in its listed life. With SpaceX soon to enter Nasdaq indices under the new fast-entry rules, this will inevitably raise questions about index inclusion mechanics.

This morning, Asia is broadly lower, again led by what can be described as Big Tech. South Korea is down slightly more than 7% at the time of writing, which is obviously a violent move, but it must be seen in the context of the very strong prior rally and the extreme volatility in the large Korean tech names.

Looking back to Europe and the US, futures are lower, with US tech again doing most of the damage this morning.

FI and FX: EUR/USD traded on a heavy note to start the week as the spread between USD and EUR interest rates continued to push higher. Expectations in the market about a possible rate hike in the US continues to build after new Fed chair Kevin Warsh’s first FOMC meeting last week, while the market further scaled back on the prospect of another ECB hike the coming months after comments from President Lagarde. USD/JPY briefly rose to 161.9 yesterday and topped the high from Friday. The broad USD appreciation and rise in US Treasury yields exert upwards pressure on the pair, which seems to have settled above the 161 level now. We expect it to trade around this level near-term. In rates space, US yields played catch-up during yesterday’s session rising roughly 5bp across the curve while European yields moved lower by a similar magnitude.