At the close of the stock market yesterday, the Dow Jones Index (US30) gained 0.03%, and the S&P 500 Index (US500) added 0.12%. The NASDAQ Technology Index (US100) closed positive by 0.21%.
The June US ISM manufacturing index was 46.0, below the consensus forecast of 47.1 and weaker than the May reading of 46.9. This is the worst reading since May 2020 and the eighth consecutive reading below 50 (the level between growth and contraction). Key subcomponents such as new orders, production, employment, and customer inventories are in decline. Absolutely all components of the index point to contraction. But the US Federal Reserve is still determined to raise rates further because the labor market and GDP are the main indicators of a slowing economy for the Central Bank.
The spread between 2-year and 10-year US Treasury bond yields is at its highest level since 1981. The yield curve inversion, in which short-term Treasuries trade at higher yields than long-term securities, is a reliable signal of an impending recession. The 2/10 yield curve has flipped 6-24 months before every recession since 1955 and has only been false once in all that time.
The US Treasury Secretary Janet Yellen said Friday that the US economy is on track to maintain a strong labor market while lowering inflation. Yellen also added that solid household and corporate balance sheets would be a source of US economic strength, along with a continued surge in factory construction.
Shares of Tesla, Inc. (TSLA) jumped nearly 7% yesterday after the electric carmaker beat second-quarter delivery expectations. The stock has more than doubled this year.
Stock markets in Europe were mostly down Monday. Germany's DAX (DE30) decreased by 0.41%, France's CAC 40 (FR40) lost 0.18% yesterday, Spain's IBEX 35 (ES35) added 0.54%, and the British FTSE 100 (UK100) closed negative by 0.06%.
The Eurozone's manufacturing sector has been weak for several months, and the decline worsened in June. The Eurozone manufacturing PMI slowed to 43.4 in June, down from 44.8 and below the consensus forecast of 43.6 points. Eurozone manufacturing has been contracting for 12 months in a row, and the PMI has reached its lowest point since May 2020. Germany, the bloc's largest economy, looked even worse, as the PMI fell to 40.6 from 43.2 and below the consensus forecast of 41.0 points. Spain, Italy, and France also reported readings below 50.
After another interest rate hike on July 27, ECB officials are trying to determine how much the cost of borrowing should rise after that to bring inflation under control. ECB officials say in one voice that the tightening cycle is not over yet, but each meeting will be considered individually based on new economic data. Analysts forecast two more rate hikes this year from Europe's central bank – in July and September.
Asian markets mostly rose yesterday. Japan's Nikkei 225 (JP225) gained 1.70%, China's FTSE China A50 (CHA50) increased by 1.91%, Hong Kong's Hang Seng (HK50) jumped by 2.06% on the day, while Australia's S&P/ASX 200 (AU200) was up by 0.59% on Monday. On Tuesday, most Asian stocks opened with a decline. Disappointing indicators of manufacturing activity in the United States, Germany, and China undermined the mood this week, adding to fears of a slowdown in global economic growth.
Australia's central bank kept its interest rate at 4.10% on Tuesday, saying it needed more time to assess the impact of past hikes, but warned that further tightening may be needed if inflation does not continue to slow.
S&P 500 (F) (US500) 4,455.59 +5.21 (+0.12%)
Dow Jones (US30)34,418.47 +10.87 (+0.032%)
DAX (DE40) 16,081.04 −66.86 (−0.41%)
FTSE 100 (UK100) 7,527.26 −4.27 (−0.057%)
USD Index 103.00 −0.09 (−0.09%)
- – Australia RBA Interest Rate Decision at 07:30 (GMT+3);
- – Australia RBA Rate Statement at 07:30 (GMT+3);
- – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3).
by , 2023.07.04
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