US ISM Manufacturing PMI rose to 49.0 in June
- ISM Manufacturing PMI ticked higher to 49.0 in June, surpassing consensus.
- The US Dollar continues to decline, approaching multi-year lows.
Economic activity in the US manufacturing sector picked up some pace in June, with the ISM Manufacturing PMI advancing to 49.0 from 48.5 in May, coming in above experts' expectations of 48.8.
The Employment Index dropped slightly to 45.0 from 46.8 in May, suggesting that the sector's payrolls are facing some headwinds. Meanwhile, the Prices Paid Index, which measures inflation, rose a tad to 69.7 from 69.4. Finally, the New Orders index eased to 46.4 from 47.6 in the previous reading.
From the release: “Regarding output, the Production Index increased month over month and is now in expansion territory; however, the Employment Index dropped further into contraction as managing head count is still the norm, as opposed to hiring. The mixed indicators in output suggest companies are still being cautious in their hiring even with an increase in production”, argued Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
Market reaction
The US Dollar (USD) trades on a marked bearish bias on Tuesday, hovering around multi-year troughs around 96.60 as investors assess the data releases as well as Chief Powell’s remarks at the ECB Forum.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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