US S&P Global PMIs Preview: Economic expansion set to extend into June
- S&P Global preliminary PMIs are expected to confirm ongoing expansion in the US private sector’s business activity in June.
- Survey details on inflation and employment will be scrutinized by market participants.
- EUR/USD needs to clear 1.0790-1.0800 to attract buyers.
S&P Global will issue flash estimates of the United States (US) Purchasing Managers Indexes (PMIs) for June, a monthly survey of business activity, on Friday. The survey is expected to show that the economic activity in the private sector continued to expand at a moderate pace.
In May, S&P Global Composite PMI improved to 54.5 from 51.3 in April. The Manufacturing PMI edged higher to 51.3 from 50.0, while the Services PMI climbed to 54.8 from 51.3. Assessing the survey’s findings, “the US economic upturn has accelerated again after two months of slower growth, with the early PMI data signaling the fastest expansion for just over two years in May,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.
Regarding the inflation dynamics, Williamson noted that selling price inflation ticked higher in May. “The main inflationary impetus is now coming from manufacturing rather than services, meaning rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed’s 2% target still seems elusive,” he elaborated further.
What to expect from the next S&P Global PMI report?
PMI surveys are widely accepted as forward-looking or leading indicators. As the Federal Reserve (Fed) clings to a data-dependent approach to policymaking, investors will pay close attention to PMI data heading into the weekend.
The S&P Global Manufacturing PMI is forecast to edge lower to 51.0 from 51.3 in May, and the Services PMI is expected to retreat to 53.7 from 54.8. A reading above 50.0 presents an expansion in the sector’s business activity.
When will June flash US S&P Global PMIs be released and how could they affect EUR/USD?
The S&P Global Manufacturing, Services and Composite PMI reports will be issued on Friday, June 21, at 13:45 GMT.
In case either the Manufacturing or the Services PMI unexpectedly falls below 50.0 and points to contraction, the initial market reaction could make it difficult for the US Dollar (USD) to find demand and help EUR/USD edge higher. On the other hand, the USD could gather strength if there is a positive surprise in either PMI print.
Focus will shift to the underlying details on employment and inflation developments if PMIs come in near analysts’ estimates. In case surveys highlight higher input inflation, investors could refrain from pricing in a Federal Reserve rate cut in September and trigger a leg lower in EUR/USD. A significant negative contribution to either PMI from employment could cause the USD to come under selling pressure and provide a boost to the pair.
FXStreet Analyst Yohay Elam thinks that upbeat PMI data would hurt Gold and support the US Dollar, while soft figures would have the opposite impact. “Stocks might follow the US Dollar if the data is weak – I expect investors to take profits off the table ahead of the weekend,” he adds.
In the meantime, Eren Sengezer, European Session Lead analyst at FXStreet, shares a brief technical outlook for EUR/USD:
“EUR/USD needs to climb above 1.0790-1.0800, where the 100-day and the 200-day Simple Moving Averages are located, and confirm that area as support to attract technical buyers. In this scenario, the pair could target 1.0900 (static level, psychological level) and 1.0950 (static level from March).”
“On the downside, sellers could take action with a drop below 1.0670 (Fibonacci 78.6% retracement of the uptrend from mid-April) and cause EUR/USD to slide toward 1.0600 (static level).”
Economic Indicator
S&P Global Composite PMI
The S&P Global Composite Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging US private-business activity in the manufacturing and services sector. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for USD.
Read more.Next release: Fri Jun 21, 2024 13:45 (Prel)
Frequency: Monthly
Consensus: -
Previous: 54.5
Source: S&P Global
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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