Can Global PMIs Keep Risk Appetite Going? – Orbex Forex Trading Blog

Next will have a complicated start. The US will have a shortened trading session on Monday, and then be closed on Tuesday for Independence Day. Canada Day is on Monday, as well. Many traders will take Monday off as part of an extended weekend, leaving the market with limited liquidity.

Meanwhile, a series of important data will come out through Monday’s truncated session. Key among them is the release of global manufacturing PMIs, which are often seen as a barometer of economic sentiment. They can substantially change the risk-on or risk-off mood of the markets. On the other hand, retail traders tend to be more bullish, which means the typical reaction to the data might be delayed until the big bucks come back on Wednesday. The choppy trading could be especially pronounced if the PMI figures don’t all fit within a comfortable theme, leading to wider swings in sentiment.

The all-important context

Over the last two weeks there were a couple of important developments that could frame the market’s reaction to the upcoming data. First was the release of Flash PMIs for several of the major countries, which came in below expectations. Naturally expectations have been revised to reflect those poorer performing numbers, so a beat in the outlook isn’t necessarily all that positive. That would be because it’s returning to what had been already expected. On the other hand, if the final figures are revised lower, it could have a larger impact as it means that the results were worse than the already bad preliminary numbers.

The second issue is that major central bankers got together last week and essentially promised continued monetary tightening through the rest of the year. ECB President Lagarde implied rate hikes would continue to at least September, if not longer. Fed Chair Powell said two more rate hikes are to be expected, which would also mean hikes going until September. And BOE Governor Bailey admitted that inflation in the UK is far from over, and wouldn’t even talk about how many rate hikes could be expected.

The market reaction

All of this contradicted the market’s view that these same central banks would be forced to cut rates as the economy declined. The higher rates are seen as the main driver of a potential recession. So, there is reason to believe this commentary had a sobering effect on corporate managers, who might trim back their outlook for this year, which could potentially be reflected in more negative PMIs coming out. On the other hand, better than expected PMIs could offer a relief valve. Possibly in the short term as retail traders seize on the good news, and might get reversed when the big traders come back.

UK June Manufacturing PMI is expected to be confirmed at 46.2, down from 47.1 previously. As bad as it is, it’s still better than across the Channel, where Eurozone June Manufacturing PMI is expected to confirm its drop to 43.6 from 44.8 prior. Remember that the Euro area is already technically in a recession.

In the US, things are a little different, with S&P Global Manufacturing final PMI survey expected to fall to 46.3 from 48.4 prior. This is the equivalent measure to the one conducted in other economies. But the ISM Manufacturing PMI is expected to rise to 48.0 from 46.9, still in contraction but going in the opposite direction as the other measures. Typically, the market pays more attention to the ISM than the S&P measure.

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• Source: https://www.orbex.com/blog/en/2023/06/can-global-pmis-keep-risk-appetite-going