June PMIs Underperform

Following a strong set of Eurozone and UK manufacturing readings yesterday, which both beat expectations, the US bucked the trend. The flash manufacturing PMI reading for June printed 49.6 which, while it still marked a solid improvement from the prior month’s 39.8 reading, it was below the expected 50 level and means that the factory sector in the US remained in contractionary territory last month.

US Manufacturing Still Soft In June

The US has seen widespread reopening of local economies over the last month, helping lift industrial activity following a plunge to record lows earlier in the year as a result of the COVID-19 lockdowns. Markets were somewhat disappointed by the June reading, following the stronger data prints in the UK and Eurozone. Nevertheless, risk sentiment has been broadly positive, encouraged by the strong rebound which suggests that US manufacturing will almost certainly be back in expansionary territory this month as the reopening of local economies continues.

The US services PMI for the month was a similar story. Printing 46.7, the data marked a near ten-point increase from the prior month but came in just below the expected 46.9 level and means that the services sector also remained in contractionary territory last month.

The data comes as more of a disappointment following the bumper prints we have seen in other parts of the US economy recently with a record May jobs number and a stellar retail sales print. If anything, the data serves more as evidence of Fed chairman Powell’s warning to the markets that full recovery in the US economy will take some time and investors shouldn’t get carried away on the back of one or two strong readings.

New Home Sales Rise

However, data was not all disappointing yesterday. New home sales saw a fresh jump, rising 676k over the month. This marked a strong uptick from the prior month’s 580k reading and was above the expected 637k reading also. This data marks a 17% jump on the prior month and comes as US mortgage applications hit an 11-year high.

Durable Goods Due Next

Investors are now waiting on the US durable goods number, due tomorrow, which is expected to rise from the prior month’s -7.7% reading to 2.4% on the core number and from -17.7% to 10.3% on the headline number.  A positive number should help give risk sentiment a fresh lift while any weakness will likely see the current pause in equities upside turn into more of a correction.

Technical Views

S&P500 (Neutral, bullish above 3115.75)

From a technical viewpoint. The S&P continues to struggle around the 3115.75 level. Following support at the retest of the yearly pivot just below 3000, price has since failed at a retest of the broken bullish trend line and remains below currently. While below the 3115.75 level, risks of a correction lower continue to build.

US Manufacturing Still Soft In June

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