Global manufacturing cycle near a peak

Market movers today

Today is an extremely quiet day in terms of economic data releases. We are, however, looking forward to hearing from NY Fed President John Williams later today. Since the hawkish shift at the June meeting, it will be interesting to hear what Williams's thoughts are (and also other policy makers during the week with plenty of Fed speeches).

Markets will also digest the results from the French regional elections yesterday.

Besides that focus is on the preliminary PMIs on Wednesday (have we seen a peak in manufacturing PMIs?) and the Bank of England meeting Thursday.

ECB President Lagarde speaks at the European Parliament at 16:15 CET. We expect mostly a repetition of the ECB decision two weeks ago in the prepared remarks, but look for PEPP discussions and strategy review discussions in the following Q&A. 

The 60 second overview

Fed: On Friday, St. Louis Fed's James Bullard suggested tapering is not right around the corner and Fed will give the market time to prepare. He also said he favours a first rate hike in 2022.

Commodities: On a broad basis, commodity markets continue to trade with a heavy not. Bloomberg's commodity index has dropped 5% since the top on 11 June, which goes hand in hand with the recent rise in the USD and could signal a peak in the global manufacturing cycle, cf. below. 

Global manufacturing: This morning we sent out a new paper arguing for a peak in the global manufacturing cycle soon, see Research Global - Manufacturing cycle to peak in Q3, 21 June 2021. We point to five reasons for a peak with the most important being fading stimulus effect in the US and a shift in consumer demand from goods to services as the reopening of the US and European economies unfold.

Equities: Equities fell across the board on Friday as investors continued to digest the Fed message Wednesday coupled with the signs of peak growth momentum and peak inflations. Correlation to fixed income turned positive as yields dropped (continuing this morning) and nervousness increasing with VIX increasing 3 points to north of 20. Value extended underperformance versus growth. Financials, last week's worst performer, came under additional pressure with banks selling off. In the US, Dow -1.6%, S&P 500 -1.3%, Nasdaq -0.9% and Russell 2000 -2.2%. Asian markets all in read this morning lead by value-intense Japanese indices. US and European futures down between 0.5% and 1% this morning.

FI: 10Y US Treasuries ended with a lower yield on Friday despite the more hawkish comments from the FOMC meeting, as the US reflation trade in the fixed income market is fading. A number of Federal Reserve officials including Chairman Powell will give speeches this week and thus we will see if we will see more bullish flattening of the US yield curve as we saw last week.

FX: USD and JPY gained on Friday, while commodity currencies, NOK, AUD, NZD and CAD lost ground. USD/NOK briefly touched 8.70 - the highest since last year. EUR/USD continued to slide and fell firmly below 1.19.

Credit: Credit was under pressure on Friday where iTraxx Xover widened almost 6bp (to 240) and Main 1bp (to 48½bp). HY bonds closed 1bp wider and IG was unchanged.