Week Ahead Economic Preview: Week Of 27 June 2022

 | Jul 01, 2022 07:44

h2 Manufacturing PMIs and Russia, UK, and US GDP data to reveal economic trends

The start of the new month brings fresh global manufacturing data in the form of the PMIs. The surveys will provide an important update on broader factory sector performance in June after the flash PMIs painted a downbeat picture for the major developed economies.

The preliminary June PMI data showed factory orders falling for the first time in two years in the US with renewed declines also seen in the UK and Japan. The eurozone - closest to the war in Ukraine - saw orders fall for a second successive month. The deteriorating manufacturing demand picture, alongside a worsening trend in services growth, led to an immediate recalibration of market pricing for interest rate paths in the US and Europe and also saw commodity prices come under pressure.

The final manufacturing PMI will provide an all-important missing piece of the June picture via updated production numbers for mainland China. In particular, analysts will be assessing whether the relaxation of some COVID-19 containment measures will have helped global supply chains improve further, especially across Asia.

CPI data is meanwhile expected for the Eurozone and Indonesia, with inflation expected to remain elevated at record levels in the former. At the same time, policymakers will be keeping a close eye on Eurozone unemployment figures, which has fallen continuously over the year to signal a tightening labour market.

Since its invasion of Ukraine and the subsequent stringent sanctions, Russia's economic conditions have deteriorated sharply. Latest Russian GDP, unemployment, and retail sales data will detail how the country has fared in May.

Updated first quarter GDP figures for the US and UK will also come to light this week and will reveal more details and granularity into the economic trends in the first quarter of the year, partly reflecting the impact of the war.

Elsewhere, Brazil, Japan, and South Korea industrial production data will be updated and be gleaned for the impact of global supply constraints and price pressures.

h2 Central bank policy enters uncharted territory/h2

We are in unchartered territory as far as central bank policy is concerned, according to S&P Global's PMI survey data. The provisional flash PMI data for June (see special report) covering the US, Eurozone, UK, and Japan showed business activity growth slowing sharply as a result of a severe worsening of demand conditions.

New orders, in fact, fell on aggregate across these major developed economies for the first time since the initial pandemic lockdowns in the second quarter of 2020. However, demand is now falling not because of COVID-19 containment measures, but because the soaring cost of living is hitting just as the economic boost from the reopening of economies from the Omicron wave is starting to fade.

Get The App
Join the millions of people who stay on top of global financial markets with Investing.com.
Download Now

Historical analysis of the surveys' leading indicators, such as manufacturing orders-to-inventory ratios and companies' future output expectations, are now consistent with economic contractions in the US and Europe in the third quarter, absent a sudden revival in demand. This, as our chart shows, would be an unprecedented demand environment in which to be hiking interest rates.

However, a welcome side-effect of the downturn in demand has been an easing of price pressures. Although still elevated, the PMI survey gauges of inflationary pressures in both manufacturing and services have generally fallen from recent peaks. It, therefore, seems that slowing demand is already doing so of the job of tighter monetary policy.