Markets have seemingly ignored weak US macro data, with the Dollar broadly unchanged for yet another session and the S&P 500, which has rallied 2.7% since 26th June, is now flirting with the 3,000 level.
The ISM non-manufacturing PMI, an indicator of economic activity in the important US service sector, fell to 55.1 in June from 56.9 in May and the average for Q2 of 55.8 was the weakest since Q3 2016. Data released on Monday had shown a similar weakening in the manufacturing sector, with the PMI in Q2 dropping to 52.2 from 55.4 in Q1. Moreover, the US labour market – until a recently a beacon of resilience – posted another set of disappointing numbers. The US non-farm private sector created only 102, 000 jobs in June, well below consensus, despite a May print of only +27,000 (the weakest since October 2010). As a result fewer than 400,000 jobs were created in Q2 – the last time this happened was seven years ago.
There has been no respite for an under-pressure Sterling, with a services PMI print of only 50.2 in June pointing to UK growth having stagnated or even contracted in Q2. Both GBP/USD and EUR/USD have inched lower, extending yesterday’s move, and markets are now pricing in 18bp of Bank of England rate cuts over the next 12 months.
