The coming week is likely to be spent in a festive and holiday mood, at least in the US, where the Independence Day holiday will be celebrated on the 4th of July. Accordingly, US financial markets will be closed on Tuesday, and a potential positive "holiday effect" may be observed in the following days. Towards the end of the week, investors may pay attention to US employment data, including the unemployment rate.
Monday 03.07. 07:55 GMT, Germany Manufacturing Purchasing Managers Index (PMI) (June)
The German Purchasing Managers' Index provides insight into the manufacturing industry's activity level as reported by purchasing managers. This measure provides an understanding of the state of the German construction industry, as it is assumed that purchasing managers have access to first-hand data on the performance of their companies. A reading above 50 indicates expansion, while a reading below 50 indicates contraction.
The last time the German manufacturing PMI was above 50 was in June 2022, indicating that the German manufacturing industry has been contracting since then. The preliminary reading for June 2023 came in at 41.0, which was worse than originally expected (43.5) and represented a drop to a new low since the Covid-19 pandemic, marking the eleventh consecutive contraction for the country's manufacturing sector and the sharpest decline in three years.
The negative impact of higher interest rates imposed by the ECB continued to weigh on the manufacturing industry. The manufacturing sector experienced a significant decline in order book levels, dropping at the fastest pace in eight months. This decline was attributed to client hesitancy and destocking. Consequently, factory output contracted as backlogs had already been cleared. Employment levels in the manufacturing sector saw a modest increase, but it was the slowest pace of growth in two-and-a-half years. Manufacturers responded to rising competitive pressures by reducing their output costs, which fell for the first time since September 2020. In addition, business confidence weakened further on concerns about the fourth quarter. The continued slowdown in new orders and the broader economic slowdown contributed to the prevailing pessimism.
Source: Tradingeconomics.com
A higher-than-expected reading may be bullish for the EUR, while a lower-than-expected reading may be bearish for the EUR.
Impact: EUR
Monday 03.07. 08:30 GMT, UK Manufacturing Purchasing Managers Index (PMI) (June)
Although also below the 50-point mark, UK Manufacturing PMI is somewhat higher than Germany's, indicating a slightly healthier environment in the manufacturing sector. June's preliminary data for the UK Manufacturing PMI declined to 46.2, falling from the previous month's reading of 47.1 and coming in lower than the market's expected figure of 46.8.
The report showed a further decline in production levels, accompanied by a significant fall in new orders. This decline was attributed to subdued underlying demand and the impact of customer destocking. Despite the challenging conditions, there was a positive development in supply conditions, as vendor lead times decreased across the manufacturing sector for the fifth consecutive month. This improvement suggested more efficient and timely deliveries from suppliers. In terms of pricing, input costs saw their largest decline since February 2016, which could be attributed to a number of factors. On the other hand, output charges saw a slight decline, indicating that manufacturers were not passing on the full extent of the reduced input costs to their customers.
Source: Tradingeconomics.com
A higher-than-expected reading may be bullish for the GBP, while a lower-than-expected reading may be bearish for the GBP.
Impact: EUR
Friday 07.07. 12:30 GMT, US Unemployment Rate (June)
The unemployment rate is the percentage of people without a job who are actively seeking employment in the previous month relative to the total number of people of working age or in the labour market. A high unemployment rate means that a large number of people are out of work despite actively seeking employment. A low unemployment rate indicates a stable labour market and greater availability of jobs.
Unemployment rates are important for economic analysis and can affect social and economic aspects. A high unemployment rate is associated with lower incomes and increased poverty, while a low unemployment rate promotes increased wages and social welfare. Governments and policymakers monitor the unemployment rate to assess the effectiveness of employment policies and take action to create jobs and support the unemployed. However, it should be remembered that the unemployment rate is one of many tools for assessing the labour market. Analyzing other indicators, such as the labour force participation rate or wages, is also essential.
In May 2023, the unemployment rate in the US rose to 3.7%, reaching its highest level since October 2022 and surpassing market expectations of 3.5%. Despite this increase, the jobless rate remained historically low, indicating that the labour market continued to be tight. The number of unemployed individuals grew by 440 thousand, totalling 6.10 million, while employment levels experienced a decline of 310 thousand, reaching 160.72 million.
Additionally, the U-6 unemployment rate, which includes people who want a job but have stopped actively looking for one and those working part-time because full-time jobs are not available, rose to 6.7% in May. This figure exceeded forecasts of 6.6%. The labour force participation rate remained unchanged at 62.6%, maintaining its highest level since March 2020.
Source: Tradingeconomics.com
A higher-than-expected reading may be bearish for the USD, while a lower-than-expected reading may be bullish for the USD.
Impact: USD
Stocks to watch
Richelieu Hardware (RCH) announcing its earnings results for the quarter ending on 05/2023. Forecast EPS: 0.595. Positive earnings surprise in 9 out of the last 10 reports. Time: Thursday, July 6, before the market opens.
Currys (CURY) announcing its earnings results for the quarter ending on 04/2023. Forecast EPS: 7.60. Positive earnings surprise in 1 out of the last 10 reports. Time: Thursday, July 6, before the market opens.
Aritzia (ATZ) announcing its earnings results for the quarter ending on 05/2023. Forecast EPS: 0.0814. Positive earnings surprise in 10 out of the last 10 reports. Time: Friday, July 7.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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