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Steady US PMI brings stability to markets
The steady US PMI doesn't change market outlook.
“Steady US PMI brings stability to markets, BoJ policy decision this week”
Despite continuous rate hikes and the banking crisis, the US economy seems to be avoiding recession risks and experiencing rapid growth, contrary to speculations of economic slowdown.
The S&P Global’s US PMI flash estimate shows that business activity in April is expanding positively in both the service and manufacturing sectors, exceeding expectations.
The comprehensive PMI, which measures overall economic activity, accelerated to a high level not seen in 11 months, and it seems that there is hardly any sustained impact on the real economy due to the confusion surrounding the banks. However, the rise in input prices and employment could be a concern for the FRB and the market.
Based on this PMI and last week’s hawkish remarks from FRB member Waler, the market has priced in a 0.25% rate hike at the upcoming meeting next week, but expectations of a rate cut have decreased.
The balanced remarks from the FRB members last week, including Cleveland Fed Master and FRB Cook, have led to the expectation that the rate hike at the upcoming meeting will be the last.
Whether the FRB will indicate a temporary pause after next week’s rate hike will depend on whether lending standards have tightened in the past few weeks.
The FRB is conducting research on credit expansion to companies and consumers on its own, and with signs of a credit crunch, it is expected to carefully monitor the results of its latest report.
The bullish trend of the US dollar is limited and the euro is rising due to the hawkish stance of the ECB Despite Friday’s positive PMI announcement, there was no change in the FRB’s interest rate forecast, resulting in a slight decline in the US dollar.
It seems that the market is gradually accepting the FRB’s message that the possibility of a rate cut later this year is low.
The hawkish remarks from other central banks, including the ECB, are also causing the bullish trend of the US dollar to be hindered.
ECB President Lagarde suggested the need for further rate hikes on Friday, and Dutch central bank Governor Knot also spoke about the possibility of a tightening cycle continuing until summer.
Although the PMI index in the eurozone rose more than expected in April, it also resulted in a clearer decline in manufacturing.
The PMI numbers in the UK were also positive, but due to the ECB’s hawkish stance, the euro is gaining more momentum than the pound.
Today, the euro-dollar is in the $1.10 range, and the pound-dollar is around $1.2450, both showing a slight increase.
BoJ policy decision on Friday This week, there will be the US GDP flash estimate on Thursday, and the eurozone GDP and US PCE inflation measures on Friday, among others.
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