The week started with modest rises in US stocks after preliminary Purchasing Mangers’ Index (PMI) data showed general positive results.
PMI Data Brings US Stocks Up
Following the announcement of preliminary PMI data in both Europe and the United States, US stocks increased slightly on Monday.
The data was mixed for North America. While the manufacturing component of the S&P Global PMI came in at 49.0, higher than predicted and just shy of the growth criterion, the services data dropped to 52.4 from 54.4.
Overall, this is encouraging information that supports the US economy's resiliency following the Federal Reserve's (Fed) strong interest rate increases. The market may also see the drop in the services sector favourably because it accounts for a significant portion of inflation; as a result, a cooling is expected to result in less upward pressure on prices.
Rise in Treasury Yields Predict One More Rise in Rates
Given the strong economic data, Treasury rates increased somewhat down the curve, discounting at least one additional Fed rate hike this week.
The US Dollar's value relative to the Euro was affected by this and the EUR/USD pair dropped beneath the 1.1100 region; levels not seen over the past two weeks.
Early PMI readings for Europe also contributed to this, showing that the Euro area's private sector GDP shrank more than expected in July.
Decision Time for ECB
Because of the slowdown in the Chinese economy's export sector and far higher inflation rates than in the US, the European economy is not showing any indications of recovery.
According to the members of the Governing Council, the European Central Bank (ECB) will likely hike interest rates by a quarter point when it meets this week to combat inflation, which will do little to boost the euro zone's economy.
Oil Rises to Highest Levels Since April
Oil enjoyed a noteworthy surge to the $79 resistance zone yesterday, the highest level since April, after the Chinese Politburo expressed its determination to pursue economic policy measures aimed at stimulating domestic demand and building confidence.
EUR/USD daily graph. Sources: Bloomberg, Reuters
Key Takeaways
- US stocks rose modestly on Monday after the release of preliminary PMI data.
- S&P Global PMI manufacturing came out higher than expected.
- Aggressive actions of the Fed seem to have helped the US economy back on its feet.
- Slight rise in treasury yields point to forecast of the Fed raising rates again this week.
- EUR/USD fell below the 1.1100 zone.
- Early readings of Europe’s PMI showed private sector economy contracted more than expected.
- ECB will meet this week to decide on interest rates.
- Oil rose to the $79 resistance zone, which is the highest level since April.
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