S&P Global will release the June flash Purchasing Managers' Indices (PMIs) for the United States on Tuesday, with market participants anticipating continued economic expansion. According to reports from S&P Global, the Services PMI is expected to print at 51, up from 50.7 in May, while Manufacturing output is forecast at 54.7, slightly below the previous month's 55.1 reading. The Composite PMI, which combines manufacturing and services data, stood at 51.5 in May. These surveys of top private-sector executives serve as early indicators of the country's economic health, with readings of 50 or more indicating expansion while readings below the threshold indicate contraction. The picture was mixed in May, with composite PMIs in the UK and eurozone both signaling contraction due to higher energy prices weighing on services demand, while the US and Japan showed ongoing growth. As noted by Fisher Investments, it's important to remember that a reading below 50 doesn't necessarily tell the full story - PMIs measure the share of businesses experiencing growth, not the magnitude of that growth overall, meaning the economy can still expand with a PMI below 50 if the biggest companies are among those still growing.
The PMI release comes after the Federal Reserve's monetary policy meeting last week, where Chair Kevin Warsh made significant changes to forward guidance. As reported by S&P Global, Warsh drastically reduced forward guidance by halving the Federal Open Market Committee statement and refraining from including his views in the dot plot. The dot plot in the Summary of Economic Projections now shows policymakers anticipating a rate hike this year, versus the previous SEP that anticipated a cut. Market participants are now weighing data in the absence of forward guidance, with the USD holding onto post-Fed gains amid caution over Middle East developments. Fisher Investments emphasizes that during an economic expansion, monthly data will vary and it's normal to have some pockets of weakness, noting that headlines may focus on geopolitical tensions, oil prices and supply chain disruption, but these are classic bricks in the wall of worry stocks love to climb. For the market to continue rising, reality just needs to be a little bit better than expectations.
The S&P Global Manufacturing, Services, and Composite PMIs will be released at 13:45 GMT on Tuesday, according to S&P Global. Valeria Bednarik, FXStreet Chief Analyst, notes that the EUR/USD pair trades above the 2026 low of 1.1411 posted in March, with bearish momentum supporting lower levels ahead. The pair extends its slide below all moving averages, with the 20-day Simple Moving Average heading firmly lower at around 1.1560. Better-than-anticipated PMI figures would boost the Greenback, while weaker-than-anticipated figures could trigger a near-term USD slide. The USD heads into the release with uncertainty-related strength, extending its advance amid caution over Middle East developments. Optimism reigned last week after the United States and Iran signed a deal to extend the truce and go into deeper negotiations, including the reopening of the Strait of Hormuz, something markets welcomed strongly. However, weekend news hit such markets' confidence as Iranian authorities announced they would close the critical sea passage again, with negotiations continuing but optimism faded.
The PMIs are expected to confirm that US business activity continued to expand in June, with modest ticks in any direction having little relevance as long as figures remain within expansion territory. As reported by S&P Global, the PMIs include inflation and employment sub-components that could reinforce or deny market beliefs in upcoming interest rate moves. Inflationary pressures have been rising, which means that an uptick in the inflation-related index could add to rate hike speculation and push the USD even higher. Most recently, data for the Consumer Price Index showed headline inflation rising from 3.8% in April to 4.2% in May, with core inflation at a more reasonable 2.9%. Headline inflation back above 4% may sound alarming, but May's CPI data closely matched expectations, which tells us that the markets were not caught off guard. Moderate money supply growth, along with the historically short-lived effect that regional conflicts like the war in Iran tend to have on energy prices, suggest inflation may moderate sooner than most expect. Fisher Investments notes that while headlines warn that inflation is likely to broaden out from here, they are skeptical, as that generally doesn't happen without some combination of major fiscal stimulus, supply chain disruptions or meaningful acceleration in money supply growth.
