On August 23, the world's leading economies released their PMI data for August, including the initial value of the Markit composite PMI in the United States, the composite PMI in the United Kingdom, and the initial value of the Eurozone's composite PMI in August. The releases reflect the performance of the global manufacturing and service industries and the comprehensive economic performance of each of the countries and regions. The PMI prints help investors grasp the overall macroeconomic trends. Investors also use the data to assess their impact on the potential for successive interest rate hikes in each economy and predict whether central banks will continue hiking or slow down.
The United States
The initial value of the US Markit manufacturing PMI for August and the US Markit service industry PMI for August will be released today. The expected value of the initial PMI print has rebounded to 50.2 from the previous value of 47.3. Markets are betting that the US manufacturing sector will continue to decline while the services sector gradually recovers. However, a weaker-than-expected performance in the services sector could weigh on the preliminary composite PMI data.
Judging from the July Markit PMI data, the US Markit service industry and comprehensive PMI in July hit new lows last seen in May 2020. Market participants believe the data indicates that the US economy will likely contract for a third consecutive quarter in Q3. In July, the market speculated that US inflation may have peaked. Still, we lack follow-up data that supports this assertion, so the August data is crucial.
Suppose the services sector picks up, as the market predicts. In that case, it will reflect a possible cooling in inflation as household spending shifts away from spending more on essentials to services. As a result, the US PMI data could reflect more room for continued interest rate hikes than in the UK and the eurozone, where inflation is higher. However, persistent underperformance in the manufacturing sector could also weigh on US economic performance, potentially weighing on the dollar. Investors must also focus on the new orders and inventory updates to gauge whether supply chain issues are worsening.
UK PMI data reflects the current state of the UK economy. However, the UK August comprehensive PMI data is not ideal. The previous value was 52.1, and the published value in August was 50.9. In particular, the country's manufacturing PMI fell sharply to 52.1 from the last value, which is expected to be detrimental to the pound's direction.
The Bank of England has raised interest rates six times since December 2021, raising concerns about whether the UK economy is headed for a recession and fueling persistent worries about the pound’s future outlook. The Bank of England expects inflation to hit 13% by the end of the year. The BoE also warned that the economy would enter a recession from the fourth quarter of this year, which will run into next year as rising costs hit the country’s growth prospects. As a result, there is not much room left for the Bank of England to raise interest rates substantially.
The initial value of the eurozone's composite PMI for August, the previous value was 49.9, and the latest value was 49.2. Although it was slightly higher than the expected 49, it was lower than the last value. The European Central Bank announced a 50 basis point interest rate hike in July. This marked the first rate hike since July 2011, ending the eight-year negative interest rate era. Therefore, the PMI data reflects the impact of interest rate hikes on the eurozone economy. However, since the PMI composite data is still below 50, it will likely affect the pace of interest rate hikes by the European Central Bank and drag down the euro. In addition, the poor economic performance of the United Kingdom and Europe may further exacerbate market worries about a recession in the world's major economies. As a result, the dollar, a safe-haven currency, may rally further as its peers lag.
Rising global raw material costs and supply chain disruptions in Japan have affected Japanese manufacturing. In addition, the performance of the service industry slowed down in July. Against the background of successive interest rate hikes by the world's major economies, Japan maintained its longstanding quantitative easing policy and promised not to raise interest rates. The slowdown in July's PMI data reflects the impact of soaring inflation on Japan’s economy, which has been above the Bank of Japan's 2 per cent target for three consecutive months. As a result, the initial value of Japan's manufacturing PMI continued to fall in August, and the latest data was 51, which was lower than the previous value of 52.1. As a result, the yen is expected to continue its downward trend and hit a new low.