The Global Services Sector Slows to End Q2 2023
Economic news and commentary for July 5, 2023
S&P Global Services PMIs
Asia Pacific
• India: 58.5 (May 61.2)
• Russia: 56.8 (May 54.3)
• Japan: 54.0 (May 55.9)
• China: 53.9 (May 57.1)
• Australia: 50.3 (May 52.1)
Europe
• Germany: 54.1 (May 57.2)
• UK: 53.7 (May 55.2)
• Spain: 53.4 (May 56.7)
• Italy: 52.2 (May 54.0)
• France: 48.0 (May 52.5)
As the second quarter came to a close, the service sector purchasing managers' index (PMI) readings across the globe showed a notable deceleration, sparking concerns about economic growth. While some Asian countries continued to report robust services activity, the overall picture indicated a loss of momentum heading into the third quarter. Many countries still reported strong services activity as reopening effects still provided some momentum in China (53.9), Japan (54.0), and India (58.5). The exception was Australia where service sector growth was barely positive at 50.3 in June which is the slowest growth in the current sequence of expansions. The level of business confidence fell to the lowest since February thanks to rising interest rates and persisting inflation. This sluggish growth marked the slowest expansion in the current sequence and was influenced by rising interest rates and persistent inflation. Consequently, business confidence in Australia dropped to its lowest point since February.
A similar trend was observed in Europe, where PMIs across the board experienced a decline. Nonetheless, four out of five PMIs remained expansionary. Notably, strong growth in countries such as Germany, the UK, Spain, and Italy tapered off in the second quarter after experiencing substantial expansions in May. France, on the other hand, witnessed a contraction in its service sector in June, with a PMI of 48.0 following moderate gains in the previous month. The Eurozone Services PMI closed at a 5-month low of 52.0 in June, down from 55.1, indicating a slowdown in the region's services sector. Despite these concerns, there was some positive news in terms of inflation. Survey responses suggested that the overall rate of input cost inflation remained sharp in June but decreased to a 25-month low. In response, firms adopted a less aggressive approach to price setting, resulting in output charges rising at the slowest pace since October 2021. However, the Eurozone Composite PMI, which encompasses both manufacturing and services, fell slightly below the 50 mark to 49.9. This indicates that the region has lost all growth momentum going into the third quarter, which is a worrisome development.
Still to come…
10:00 am (EST) - US Factory Orders
2:00 pm - US FOMC Minutes
9:30 pm - Australia Trade
Morning Reading List
Other Data Releases Today
The euro area PPI fell -1.9% MoM and -1.5% YoY in May, down from 0.9% YoY in April. Non-energy PPI fell -0.4% MoM with capital goods PPI unchanged and non-durable goods PPI down -0.1% MoM.
Euro area house prices fell -0.9% QoQ and were only up 0.4% YoY in Q1 2023, down from 3.0% YoY in Q4 2022.
French industrial production grew 1.2% MoM and 1.5% YoY in May. Manufacturing production was up 1.4% MoM and 2.1% YoY. Machinery (1.5% MoM) and transport equipment (1.1% MoM) production both expanded strongly on the month.
France Industrial Production
French industrial production rebounds (ING) - French industrial production rebounded in May more than expected, reaching its highest level since the start of the pandemic.
US
Not Much Good News from the Manufacturing Sector in June (TD Bank) - The June ISM Manufacturing Index registered 46.0, slipping from May's 46.9 reading and short of expectations for a 47.1 print.
US Dollar Credit Supply: Small pickup in financial supply (ING) - Supply levels are relatively low so far this year. We expect less Reverse Yankee supply in the coming months as USD spreads outperform EUR spreads.
Europe
Spain’s housing market is contracting, but a soft landing remains likely (ING) - The Spanish housing market has experienced a notable decline recently. However, despite the sharp rise in interest rates, there are enough mitigating factors that make a soft-landing scenario likely. We forecast 1% average price growth this year and 0% next year.
Dutch staffing industry outlook: Temp hiring slows down (ING) - Due to a softening economy, the number of temporary agency hours in the Netherlands is likely to decrease in both 2023 and 2024. New regulations and a structurally tight labour market are putting pressure on the earnings models of many staffing agencies. They need to make clear strategic choices in order to remain relevant in the near future.
Swedish June PMI: Rebound in gloomy territory (Nordea) - The manufacturing PMI rebounded to 44.8 in June, thus marking another reading in contractionary territory. All sub-indices remain below the 50-mark.
German exports disappoint again (ING) - A minor drop in May exports is another illustration that sluggish exports are not an exception but rather the new normal.
NL Update - Dutch manufacturing order backlogs show sharp decline (ABN AMRO) - The Nevi Netherlands Manufacturing PMI dropped further again, from 44.2 in May to 43.8 in June. Demand is still very weak. New orders continued to drop quickly while order backlogs declined at the fastest rate since 2009, during the Global Financial Crisis.
Euro Credit Supply: Supply set to slow in the second half of the year (ING) - We expect supply in the second half of the year to be slower. Substantial pre-financing has been done over the past six months, and we expect supply in the second half of the year to total close to €85-100bn.
China
China strikes back in the tech war, restricting exports of gallium and germanium (ING) - China is imposing controls on exports of gallium and germanium, which are used to make semiconductors and electronics, in the latest development in the global battle to control chipmaking technology.
Turkey
Research Turkey - Fixing the economy with only bad options on the table (Danske Bank) - President Erdoğan's new economic team has started monetary policy normalisation. However, reversing the course without causing more pain is all but easy, as imbalances in the economy have been building up for a while.
Inflation
Inflation Monitor for July 4 (BMO) - Canadian and U.S. inflation rates are falling, but they may not be fast enough to satisfy the BoC or the Fed.
Commodities
The Commodities Feed: Further Saudi cuts (ING) - The oil market initially moved higher after Saudi Arabia announced a rollover of its additional supply cuts into August. However, the market failed to hold onto its gains with these cuts already largely expected.
Green
More emissions than meet the eye: Decarbonizing the ICT sector (Allianz) - More emissions than meet the eye: Even without taking into account the cryptocurrency boom, the global ICT sector emits as much greenhouse gases as the aviation sector. The information and communications technologies (ICT) sector drives economic growth, enables digital transformation, fosters innovation and promotes global collaboration and connectivity.
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