U.S. PMIs Miss Expectations, Highlighting Recession Risks
Key Insights
- Manufacturing PMI and Services PMI declined in December.
- Some traders are ready to bet that weak economic data will force the Fed to be less hawkish.
- It remains to be seen whether riskier assets will be able to gain sustainable upside momentum as the economy remains under serious pressure.
PMIs Decline As Interest Rates Bite
On December 16, U.S. released flash readings of PMI reports for December. Manufacturing PMI declined from 47.7 in November to 46.2 in December, compared to analyst consensus of 47.7. Services PMI decreased from 46.2 to 44.4, while analysts expected that it would grow to 46.8. Numbers below 50 show contraction.
The reports paint the same picture as yesterday’s economic data, which showed that Retail Sales, Industrial Production, and Manufacturing Production declined in November.
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Higher interest rates have already started to put material pressure on the economy. Consumer activity is slowing down, and the Services PMI data suggests that the U.S. consumer is in a worse shape than previously expected.
Meanwhile, the Fed remains hawkish and signals that it is ready to put more pressure on the economy in order to push inflation back to the 2% target.
S&P 500 Tries To Rebound After The Release Of PMI Data
S&P 500 moved higher after the release of PMI reports. Some traders were ready to bet that the Fed would be forced to be less hawkish if the economic activity continued to slow down.
U.S. dollar moved lower as traders bet that the disappointing economic data will lead to a more cautious policy from the Fed.
Gold rebounded towards the $1790 level, supported by weaker dollar. Bitcoin traded near the $17,000 level, as traders remained focused on the hawkish outlook for Fed rate hikes in 2023.
Traders should note that market sentiment may change quickly. The disappointing data may serve as a bullish catalyst for riskier assets as it may lead to a less hawkish Fed.
However, the Fed signaled that it was ready for sacrifices in order to push inflation back to the target, so it remains to be seen whether riskier assets will be able to gain sustainable upside momentum today.
For a look at all of today’s economic events, check out our economic calendar.