Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
US June manufacturing data may signal early recession
US manufacturing data, as measured by the ISM supply manager survey came in below consensus forecasts at 53.0 vs 54.5. Investors watch this data closely as it tends to be a leading indicator of economic health.
A figure below 50.0 indicates an economic contraction, so whilst the survey avoided that, new order numbers dropped to 49.2, suggesting that there might be more pain to come. The data release also comes against a backdrop of high inventory levels, so the restocking cycle looks unlikely to soften a wider economic slowdown.
Historically, slowing new orders combined with high levels of inventories have preceded a period of economic slowdown and a reduction in price pressures. The data was received by the market as signalling the rising probability of an imminent recession. Subsequently, government bonds performed better as investors sought safety.
Market review
Equity markets finished the first half of 2022 on a negative note, with the MSCI All Countries World index ending the week down 2.2%. The US tech-heavy NASDAQ composite ended the week down 4.1%, taking its six-month losses to almost 30%. US equities have not endured such a negative start to the year since 1970, and have been falling consistently on fears that persistent inflation will necessitate significant interest rate hikes, thereby tightening financial conditions.
The only sectors to end the first half of the year in positive territory, in US dollar terms, were energy (up almost 15% as measured by the MSCI ACWI Energy index), tobacco (+5% as measured by the MSCI World Tobacco index) and Aero & Defence (+1.1% measured by the MSCI World Aero & Defence index).
With recessionary fears rising, it is unsurprising that the sectors experiencing the highest falls over the past six months have been consumer discretionary (-29% as measured by the MSCI ACWI Consumer Discretionary index), and tech stocks (down almost 30% as measured by the MSCI ACWI Info Tech index).
Whilst bonds fared better last week, with the UK broad market index (BAML UK Gilts) up 1.5%, they too have suffered a bad start to the year. Year-to-date the index is down almost 13%, with longer-dated bonds down 20% as measured by the BAML 10yr+ Gilts.
The benchmark for oil, Brent Crude fell by over 1% last week, but delivered a rise of 44% for the first six months of the year.
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