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US services sector contracts

Activity in the US services sector dropped sharply last month, falling back into contractionary territory. The services sector data alongside weak labour market data also released on Wednesday brightened sentiment on markets as traders assumed the weakness may translate into quicker rate cuts by the Federal Reserve (Fed). Yields on US Treasuries fell across the curve, equities rallied and the dollar weakened. In politics, UK voters go to the polls today.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Corporate earnings season
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The Institute for Supply Management’s Services Purchasing Managers’ Index (PMI) came in at 48.8, down from May’s 53.8. The index is now back below the 50-level, which signals contraction, for the second time in the last three months. June’s reading was the lowest since the summer of 2020 - the year of the corona outbreak - and was also far below market expectations.

In addition, employment data released on Wednesday showed clear deterioration on the US labour market. Last month, private payrolls increased by 150,000 in the US, according to the ADP National Employment Report. Economists had expected a higher number. US weekly continuing jobless claims also increased for a ninth week in a row. The US employment report, due on Friday, will supply more details about the state of the US labour market.

In New York, traders interpreted the combination of a weak services sector and cooling labour market to mean the Fed could cut rates earlier than expected. Treasury yields dropped with yields on two-year US government debt trading at 4.7% and 10-year yields below 4.4%. The Dow Jones Industrial finished Wednesday with a mild loss of 0.1%, while the S&P 500 gained 0.5%. The Nasdaq-100 shot up 0.9% to break away from the 20,000 mark, closing at 20,186.63 points, a new all-time high. The chipmaking sector drove gains, while Microsoft reached a record high for the third day in a row. US markets closed early on Wednesday and will remain closed today for a public holiday. Trading resumes Friday.

Japanese stocks near all-time highs

In the Asia-Pacific region, stock markets were trading mostly in positive territory on Thursday, with the exception of Chinese stocks. Hong Kong's Hang Seng Index was down 0.3% after Hong Kong’s Composite Purchasing Managers’ Index dropped to 48.2 in June from 49.2 in May. Mainland China’s CSI 300 was down 0.3% as well. In Tokyo, the Nikkei 225 was approaching its all-time high again, trading 0.8% higher on Thursday. In South Korea, the Kospi gained 0.8% and Australia’s S&P/ASX 200 was trading 1.2% higher.

Euro-area business activity drops

Business growth in the euro area slowed significantly in June, with the Composite Purchasing Managers' Index (PMI) dropping to 50.9, slightly higher than an initial estimate of 50.8, but much lower than May's 52.2, a 12-month high. Services PMI slightly decreased to 52.8 from 53.2, while the manufacturing sector saw a notable downturn as demand fell despite reduced factory prices, causing the composite new business index to drop below breakeven. In the bloc’s largest economy, Germany, Services PMI remained above 50, which signals expansion, but the rate of expansion fell with June’s reading coming in at 53.1, down from 54.2 in May. While the European Central Bank cut interest rates last month, uncertainties around the timing of more cuts have increased due to strong labour market data and persistent price pressures. European stocks rallied on Wednesday: The Euro Stoxx 50 increased 1.3% and Germany’s DAX finished the session 1.2% higher.

Corporate and macroeconomic calendars

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

Economic data in focus: UK parliamentary elections, Swiss unemployment data, German industrial orders, Swiss Consumer Price Index.

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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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