- The ISM Manufacturing PMI ticked lower to 48.0 in June, missing consensus.
- The US Dollar remains well on the defensive, revisiting two-day lows.
In July, the US manufacturing sector lost some momentum. The ISM Manufacturing PMI dropped from 49.0 in June to 48.0, which was also lower than analysts' predictions of 49.5.
The Employment Index fell from 45.0 in June to 43.5, which means that the sector's payrolls are having some trouble. The Prices Paid Index, which monitors inflation, went down from 69.7 to 64.8. Finally, the New Orders index rose from 46.4 to 47.1 in the previous reading.
From the release: “Regarding output, the Production Index increased month over month to move further into expansion territory; however, the Employment Index dropped further into contraction as panellists indicated that managing head count is still the norm at their companies, as opposed to hiring. The mixed indicators in output suggest companies still being cautious in their hiring even with an increase in production,” argued Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
Market reaction
The US Dollar (USD) trades on a marked bearish bias on Friday, hovering around the 98.80 region when gauged by the US Dollar Index (DXY) as investors assess the recent data releases as well as speculation of a potential rate cut by the Fed in September.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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