From Marc to Market:
Japan Retains Distinction of being the only G7 Country with Sub-50 PMI Composite
Overview: Federal Reserve officials, lead by Chair Powell, pushed gently against the more hawkish interpretations of last week's FOMC meeting. Tapering not a rate hike was the focus of discussions. Powell reiterated that price pressures would prove transitory and would ease after the re-opening disruptions settled down. The implied yield on the December 2022 Eurodollar futures fell for the second day, and the cumulative three basis point decline was the most in a month. The 10-year yield was capped near 1.50% and remains below there today. The stronger than expected EMU preliminary PMI did not prevent European bond yields from slipping either. The dollar is softer against most major currencies, but the Japanese yen and Japan retain the distinction of being the only G7 country with a composite PMI below the 50 boom/bust level. Despite a strong preliminary PMI, the euro is struggling to extend yesterday's recovery. The freely accessible and liquid emerging market currencies are also higher. The JP Morgan EM FX index is higher for a third day after dropping in the previous six sessions. The Czech central bank is expected to hike 25 bp later today after Hungary hiked by 30 bp yesterday and announced the start of a new tightening cycle could see monthly adjustments. Asia Pacific equities were mixed. China, Hong Kong, Taiwan, and South Korea advanced, while Japan, Australia, and India slipped. Europe's Dow Jones Stoxx 600 recovered yesterday after a soft start. It is trading a little heavier in the European morning. US futures indices are slightly higher. Industrial commodities, including copper, iron ore, and steel rebar, are trading higher. August WTI is at a new high of around $73.50, helped by a 7.2 mln barrel drawdown of US inventories, according to reports citing API. It confirmed it would put US inventories at a new 14-month low. Gold is consolidating in a narrow range of around $1780.
Asia Pacific
Japan's preliminary PMI underscores the toll of the formal state of emergency and the slow vaccine rollout. The manufacturing PMI slipped to 51.5 from 53.0, while the contraction in the services slowed, signaled by the services PMI edging up to 47.2 from 46.5. The composite fell further from the 50 boom/bust level, easing to 47.8 from 48.8.
Australia's flash PMI softened, but it remains at strong levels. The manufacturing PMI eased to 58.4 from 60.4, and the services PMI dropped to 56.0 from 58.0. This resulted in the composite slipping to 56.1 from 58.0. The strength of last week's employment data and today's report gives the central bank reason to adjust policies at the July 6 meeting. The focus is on its bond-buying and three-year yield target. The market does not see a rate hike until at least the middle of next year.China had indicated that it was prepared to sell some industrial metals from its state inventories to relieve some pressure on prices. It appears the vague signal was more powerful than the actual announcement. Yesterday, it announced it would auction 20k metric tons of copper, 30k metric tons of zinc, and 50k metric tons of aluminum on July 5-6....
....MUCH MORE
