Breaking: US S&P Manufacturing PMI declines to 46.3 in June, Composite PMI falls to 53

Business activity in the US private sector expanded at a softening pace in early June with S&P Global Composite PMI falling to 53 from 54.3 in May. This reading came in worse than the market expectation of 54.4.

S&P Global Manufacturing PMI slumped to 46.3 from 48.3 in the same period and Services PMI edged lower to 54.1.

Commenting on the survey's findings, "the overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes," Williamson further elaborated. "Any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs."

Market reaction

The US Dollar (USD) preserves its strength after the PMI data. As of writing, the US Dollar Index, which tracks the USD's performance against a basket of six major currencies, was up 0.5% on the day at 102.90. 

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The section below was published at 13:00 GMT on Friday as a preview of the release of the preliminary S&P Global PMI surveys for June.

• June S&P Global Preliminary Manufacturing PMI to remain in contraction, Services PMI set to decline.
• Potential surprises to the US PMI data will infuse intense volatility, impacting the Federal Reserve expectations.
• EUR/USD corrects from monthly top from above 1.1000 ahead of the US data release, eyeing a rebound.

The S&P Global US Purchasing Managers Index (PMI) measures the activity level of private sector businesses through a survey conducted on a monthly basis. On Friday, June 23, the company will publish the June preliminary estimates of Manufacturing PMI and Services PMI for the United States (US).

As the US Federal Reserve (Fed) remains determined to bring inflation back to its 2% target, the longer period of higher borrowing costs is already negatively impacting businesses, which has led the economy to the brink of recession.

Back in May, the S&P Global preliminary US Manufacturing PMI fell for the first time in five months to 48.5, returning to contraction after a brief one-month stint in expansion territory. The Services PMI Index rose to 55.1 from 53.6, outpacing the market consensus of 52.6.

Commenting on the renewed decline in the US manufacturing sector activity in May, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warned that “we are likely to see further downward pressure on both output and prices for goods in the coming months, thanks to the demand environment which has been hit by higher interest rates, the increased cost of living, economic uncertainty and a post-pandemic shift in spend from goods to services.”

What to expect in the next S&P Global PMI report?

The S&P Global Manufacturing PMI Index is seen a tad higher at 48.5 in June, compared with the final reading of 48.4 registered in April. The Services PMI, however, is expected to decline to 54.0 in June vs. the previous month’s final figure of 54.9. The Composite PMI is foreseen at 54.4 in the current month, up from May’s 54.3 final figure.

Analysts at TD Securities noted that “the S&P PMIs will offer a first comprehensive look at the state of the US economy for early June. Note that the manufacturing PMI registered its first decline this year in May, while the services PMI continued to improve, posting its fifth consecutive gain last month. We expect the mfg index to improve but to stay under contraction territory, while the services PMI likely lost speed.”

When will June flash US S&P Global PMIs be released and how could it affect EUR/USD?

The S&P Global PMI report is scheduled for release at 13:45 GMT, on June 23. In the lead-up to the US PMI showdown, the US Dollar is recovering from monthly troughs, setting EUR/USD on a corrective decline toward the 1.0900 level.

An upside surprise to the US PMI data will reinforce expectations of two more Federal Reserve interest rate hikes in the second half of this year, as projected by the dot plot chart last week. Markets are now pricing a 77% probability of a Fed rate hike next month. If the US data suggests signs of resilience in the US economy, the US Dollar could receive a fresh lifeline, particularly against the Euro.

On the other hand, dwindling US business activity will accentuate US economic concerns, which could provide additional legs to the ongoing US Dollar downtrend, especially after the testimony by Fed Chair Jerome Powell was viewed as less hawkish than what markets had priced. Nevertheless, the US Dollar could see limited downside and capitalize on its safe-haven status on disappointing PMI readings.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and writes: “bullish 21-Day Moving Average (DMA) is on the verging of piercing the horizontal 100 DMA from below, which if materialized will confirm a Bull Cross. Meanwhile, the 14-day Relative Strength Index (RSI) is keeping its range well above the midline. These suggest that risks remain skewed to the upside for the EUR/USD pair in the near term.”

Dhwani also outlines important technical levels to trade the EUR/USD pair: “Should Euro buyers fight back control, a rebound toward the monthly highs of 1.1012 cannot be ruled. Further up, the 1.1050 psychological mark will be tested. Conversely, immediate support awaits at Wednesday’s low of 1.0907, below which the flattish 50 DMA support at 1.0877 could come into play.”