BREAKING: USD strengthens after upbeat flash PMI data

2:48 PM January 24, 2023

• The S&P Global US Manufacturing PMI rose to 46.8 in January  from 46.2 in December, well above market forecasts of 46.0 flash estimates showed. Still, the reading continued to point to another contraction in factory activity which was the second-fastest since May 2020 as manufacturing demand conditions remained subdued. Output contracted following another sharp drop in new order inflows, with firms highlighting the impact greater costs were having on client demand. The rate of decline in new business was the second-fastest in over two-and-a-half years and firms cut their workforce numbers for the first time since July 2020. On the price front, input costs increased at a faster pace, ending a sequence of moderation in cost inflation that began in mid-2022 while output prices also rose. Vendor performance deteriorated only marginally, with supply chain disruption much reduced from that seen in 2022.

• The S&P Global US Services PMI jumpe to 46.6 in January from 44.7 in the previous month, above analysts' estimates of 45.0, a preliminary estimate showed. The latest reading signaled a solid fall in service sector output, but one that was the softest since last October, amid customer hesitancy and high inflation. The decrease in new business was only marginal overall, while employment rose only fractionally and backlogs of work declined further. On the price front, input cost inflation accelerated and output price inflation was unchanged from December. Finally, business confidence reached a four-month high amid hopes that domestic and external demand conditions improve.

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Manufacturing PMI remains below the 50 pts mark for the 7th month in a row, while services PMI for 3rd month. Source: Bloomberg via ZeroHedge

“The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Dollar strengthened and US equities moved lower following publications of both reports. Although today’s reading easily topped market estimates, both indexes remain in contraction territory, which point out to weaken the state of the US economy. Meanwhile Composite PMI from Europe and Japan returned above 50 pts. Therefore today’s upbeat data is unlikely to change FED’s hawkish approach.

EURUSD fell after today's PMI data. The pair continues to trade below 1.0870 level. Source: xStation5

 

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