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Mixed US manufacturing data

Two separate surveys of purchasing managers in the US came to contradictory conclusions about the state of factories in the world’s largest economy on Monday, with one showing a strengthening expansion and the other a deepening contraction. The difficult-to-interpret data couldn’t stop Wall Street from starting the second half of the year with gains. European market sentiment was also positive on Monday, despite weak Purchasing Managers’ Indices (PMI) from the continent. In Asia, equity trading was mixed on Tuesday.

Shane Strowmatt, LGT
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The Institute for Supply Management’s Manufacturing PMI signalled contraction in US factory activity for a third month in a row Monday, coming in at 48.5 in June. That’s lower than May’s 48.7 and below the level of 50, which separates contraction from expansion. New factory orders remained in contractionary territory as prices decreased significantly, according to the ISM survey. However, the S&P Global Manufacturing PMI for June rose to a three-month high of 51.6, up from 51.3 the previous month. The S&P survey also noted new orders have been rising for a second consecutive month.

Market participants generally interpreted the manufacturing data, which came in below expectations, as “bad news is good” for the Federal Reserve’s monetary policy. In New York, stock indices began the second half of the year with mild gains. The Dow Jones Industrial finished Monday’s session 0.1% higher, the S&P 500 gained 0.3% and the tech-heavy Nasdaq-100 increased 0.6%.

In US politics, the Surpreme Court ruled that former president Donald Trump has immunity from some charges related to his attempts to overturn the 2020 election results. A lower court must now reexamine the case, which likely pushes out any potential trial beyond this year’s presidential elections.

Korean inflation below expectations

In the Asia-Pacific region, stock markets were trading mixed on Tuesday. Traders were interpreting inflation data out of South Korea, which came in at 2.4% in June, clearly lower than market expectations. The Kospi was leading Asian losses on Tuesday, trading down 0.7%. In Tokyo, the Nikkei 225 was trading 1.2% higher and Australia’s S&P/ASX 200 was down 0.3%. Chinese equities were mixed: Hong Kong's Hang Seng Index gained 0.4%, while the mainland CSI 300 was trading marginally lower.

Euro-area manufacturing contraction confirmed

June’s Manufacturing PMI for the euro area was revised slightly higher to 45.8 on Monday, 0.3 points higher than the first reading of 45.6 two weeks ago. While higher, the reading suggests manufacturing in the economy is clearly still contracting. In the bloc’s largest economy, Germany, Manufacturing PMI in June came in at 43.5, down from 45.4 in May, confirming the preliminary flash estimate. The Euro Stoxx 50 gained 0.7% and Germany’s DAX closed 0.5% higher on Monday.

German inflation eases back towards ECB target

Monday’s other economic data releases out of Europe included Germany’s Consumer Price Index, which came back down somewhat to a 2.2% increase in June. In May, the year-on-year inflation rate increased to 2.4% after 2.2% in April. June’s core inflation rate – which strips out volatile food and energy prices - was 2.9%, down slightly from May’s 3.0% and still some way off the European Central Bank's 2% inflation target.

In Switzerland, retail sales adjusted for the number of sales days and holidays dropped by 0.3% in May, when compared to the previous year, according to data released on Monday. Switzerland’s SMI finished Monday’s session up 0.5%.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: euro-area unemployment figures, euro-area consumer prices, European Central Bank President Christine Lagarde and Federal Reserve Chair Jerome Powell speak at the ECB Forum on Central Banking in Portugal, US JOLTS jobs report.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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