ISM PMI highlights ongoing inflation and employment concerns

European markets are on the rise today, with traders brushing aside the latest German retail sales report which brought a surprising decline of 1% which builds on the -0.8% decline in May. On the upside, the latest eurozone retail sales report has brought a welcome rise to a nine-month high of 3.1%. Investors in mainland Europe appear to be in a relatively confident mood following a US-EU trade deal that eases concerns around tomorrow’s tariff headline, with the focus more heavily focused on the likes of India and Switzerland. The impending 39% tariff faced by Swiss exporters has understandably dented sentiment, with the nation’s stock market largely treading water as we await a potential deal to avert the dramatic hike in tariffs. Notably, today could bring some cause for optimism, with President Keller-Sutter undertaking discussions with Marco Rubio in a bid to reach a breakthrough ahead of tomorrow’s deadline.

Yesterday’s ISM services PMI report provided yet another reminder of the price pressures that remain inherent within the US economy right now, with the latest jump in the “prices paid” metric taking it to the highest level since October 2022. Coupled with the continued deterioration in the ISM services employment figure (46.4), we can see that the Fed do face a difficult position where a weak jobs market has pushed them towards a dovish turn despite ongoing inflation concerns.

Oil prices are on the rise, with traders growing fearful around the potential implications of Trump’s hardline view over shutting down Russian oil exports. The decision to bring forward the deadline for Russia to end the war means we are now facing up a potential dramatic end to the week, with the US clearly noting that their best method of hurting Putin will be through his free flowing commodity exports. The fact that India has found itself at the forefront of this issue appears to be a case of Trump seeking to utilise the subject of the war as a basis for adding pressure on India in trade talks. Russia seems highly unlikely to end the war by Friday, and thus markets will be watching carefully to see if the likes of China and India opt to halt purchases, thus driving up energy prices globally. The elephant in the room is the fact that Trump has spent his time trying to drive down oil prices, and thus the question here is whether he values an end of the war more or less than keeping down petrol prices and inflation.