According to the S&P Global/CIPS flash PMI survey data, the United Kingdom’s (UK) Manufacturing PMI fell to a two-year low, settling at 52.8 points in June (May: 54.6 points). The slowdown reflects the intertwining impacts of (1) lingering economic uncertainties, (2) raw material shortages, (3) escalating inflationary pressures, and (4) slowdown in China induced by the government’s zero-COVID policy. Therefore, we understand that new orders contracted for the first time in 17 months while output growth was near a standstill during the review period. Meanwhile, the Services PMI rose to 54.3 points (May: 53.4 points) because of rising consumer spending on travel, leisure and events. Nonetheless, we highlight that the average Services PMI in Q2-22 (55.6 points) was much weaker than Q1-22 (59.1 points), reflecting lower spending on discretionary items, primarily due to stretched household finances. We expect private sector activity to remain tepid in the short term as the existing constraints remain elevated amidst rising demand headwinds. Notable headwinds to overall activity include (1) decline in foreign demand, (2) ongoing Brexit-related difficulties, (3) supply chain constraints, (4) lingering Russia-Ukraine conflict, and (5) elevated inflationary pressures.
Eurozone’s private sector activity slowed to a 16-month low as manufacturing production fell for the first time in two years amid a weaker rate of increase in business activity. According to the S&P Global, the Eurozone’s Composite PMI slowed to 52.0 points in June (May: 54.8 points) – the lowest print since February 2021 (48.8 points). For one, the Manufacturing PMI (52.1 points vs May: 54.6 points) moderated to a 22-month low synchronising neatly with the (1) persistent supply chain disruptions, (2) knock-on effect of the Russia-Ukraine conflict, and (3) weaker demand conditions. Elsewhere, the Services PMI (53.0 points vs May: 56.1 points) slowed to a 5-month low given the (1) ongoing cost pressures and (2) weakened international demand. We expect the private sector activity to slow further in the near term, increasing the risk of the regional bloc slipping into a downturn. Our prognosis is hinged on the slowdown in the manufacturing sector, which remains hampered by supply shortages and cost-induced shock to household spending. The preceding comes amidst the heightened concerns over energy and food supply in the coming months.
Global Markets
Global stocks mounted a rebound this week as ongoing concerns about elevated inflation and the risk of recession eased temporarily. Accordingly, US (DJIA: +0.9%; S&P 500: +2.0%) stocks were poised to close positive as investors digested stronger than expected payrolls report amid ongoing fears of aggressive rate hikes. In the same vein, European (STOXX Europe: +1.9%; and FTSE 100: +0.2%) stocks were on track to close higher on hopes of an eased inflation surge as commodity prices continue to slide. In Asia, the Nikkei 225 (+2.2%) ended the week higher, mirroring the positive sentiments on Wall Street. Meanwhile, the SSE (-0.9%) declined as new COVID-19 cases in China dented recovery hopes. Elsewhere, Emerging (MSCI EM: +0.2%) markets edged higher as gains in South Korea (+2.0%) offset losses in China (-0.9%), while the Frontier (MSCI FM: -0.6%) market closed lower following sell-offs in Kuwaiti (-0.2%) equities.
