How could it be otherwise? Between the significant drop in purchasing power (-3.9% in May in the United States in real terms) and the tightening of financing conditions in the wake of the central banks' rate hikes, growth is finally showing signs of running out of steam . It may seem paradoxical to rejoice at this... However, this is good news for the markets, which hope that this slowdown will be able to calm inflationary tensions and loosen the grip of the monetary tightening in progress.
In the United States, the activity indicators for the month of June clearly show a slowdown in growth with downward surprises. The composite PMI thus fell back to a five-month low (51.2 against 53 expected and 53.6 the previous month) driven by the fall, of the same order, in services but above all by the more marked slowdown in the manufacturing sector, where the component production goes into a contraction phase and hits a 24-month low. Weak demand in the manufacturing sector is finally beginning to have an impact on prices with a drop in input prices and selling prices. In the euro zone, the activity indicators generally reflect the same picture. The composite indicator for the month of June stands at a low of February 2021 with, as in the United States, a production component in the manufacturing sector in a contraction phase, also a first in two years.
Although the international context is still a source of uncertainty, in particular due to its impact on energy prices, sentiment on the financial markets nevertheless seems to have turned around slightly last week. Focused on the inflationary risk, investors now consider any sign of a decline in growth as good news, even if it means going through the recession box if it remains measured. Moreover, the members of the FOMC hide it less and less, as does the director of the IMF who said she was "aware that the way is narrow to avoid a recession in the United States".
At the same time, if the University of Michigan survey for the month of June confirmed the defeatism of American households, the drop in their long-term inflation expectations from 3.3% to 3.1% , which are thus back in the historical range, has added grist to the mill in the feeling of calm in inflation, as has the increasingly marked fall in the prices of raw materials. The equity markets thus rebounded strongly last week, with a marked drop in rates. While we were highlighting the sharp rise in two-year rates last week, the trend has also completely reversed, with the German five-year rate posting one of its biggest historical declines last week… Is this a lasting trend? First elements of response expected this week with the publication of CPIs in the euro zone and PCE inflation in the United States.