Market 09/06: Gasoline prices bring inflation concerns back to the market

S&P Global Services PMI warns of Stagflation risk

S&P Global Services PMI disappoints, falling to 50.5 from 52.3 last month. However, the US Non-Manufacturing PMI rose to 54.5 (much higher than the expected 52.5) - a truly good number as the services sector begins to recover strongly post-pandemic.

Compared to the services sector, manufacturing activity is lagging due to pressure from sluggish trade and the Fed's tight monetary policy. After a surge of +2.3% in June, factory orders are expected to drop sharply -2.1%.

Following this PMI report, the next boost for USD is expected, as services have outperformed goods by about 2.5 points four times in at least six months over the past 10 years, and each time, USD has risen an average of 4%.

ECB warns markets not to underestimate the possibility of rate hikes

According to the monthly survey on Tuesday, investors expect the ECB not to raise rates; however, ECB Governing Council members have signaled another rate hike – currently at 3.75%.

Some other information from the survey:

• Inflation expectations for the next 12 months will not slow down, remaining at 3.4%.

• Unemployment rate expectations for the year remain at 11%.

• Nominal income next year is expected to increase 1.1%.

• Mortgage rate expectations for next year rise slightly from 5% to 5.1%

Additionally, German factory orders fell significantly -11.7% in July, much worse than the forecasted -4.3%, indicating that difficulties continue into Q3. This decline comes from lack of demand in China and the recession due to the Russia-Ukraine war.

China: Economy increasingly bleak, USD strength poses liquidity risk

Rising USD puts further pressure on CNY liquidity and other global currencies in general.

China mired in recession causes increasing capital outflows. A series of government support policies still fail to retain foreign investors.

Additionally, China's infrastructure spending is facing many issues. Of the 25 provinces that have released 2022 budget audit reports, 80% have mismanaged bond funds, hindering the investment process.

Some other news:

• July trade deficit rises slightly to 65 billion USD from 63.7 billion USD the previous month. Imports up +1.7%, while exports up +1.6% from the previous month.

• US housing starts fell 2.1% to 141.9, the lowest since 1995. High interest rates are seriously damaging the housing market.

• Evergrande shares surge 70% after Country Garden temporarily escapes the brink of debt default