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PMI Data Preview: Recession Risk Returns

By:Ilya Spivak

Stock markets wobbled before FOMC minutes and Nvidia earnings. Will PMI data revive global recession fears?

  • Wall Street turned jittery before May FOMC minutes and Nvidia earnings.
  • Fed guidance strikes a hawkish tone, warning rate hikes may be needed.
  • PMI data now in focus. Global growth fears may return on soft outcomes.

Stock markets wobbled and the U.S. dollar rose as traders digested minutes from May’s meeting of the Federal Open Markets Committee (FOMC).

Members of the Federal Reserve policy-setting group struck a hawkish tone, citing “disappointing” inflation data in the first quarter and “mentioning raising rates” if that seems warranted.

The document showed that central bank officials believe the current setting of policy is restrictive, but there is uncertainty about the degree of tightness. Some of them worried aloud that high interest rates are having a smaller effect than previously, and that financial conditions are too loose.

Wall Street turned defensive before FOMC minutes, NVDA earnings

The bellwether S&P 500, the tech-tilted Nasdaq and the small-cap Russell 2000 began to slide downward about 30 minutes before the FOMC minutes came across the wires. That might have reflected defensive pre-positioning for the possibility of combative rhetoric, given the hawkish tone from Fed officials in public comments recently.

FOMC minutes
Source: tastytrade

After the publication, stocks continued to slide into session lows. Momentum was cut short quickly however, with traders unwilling to commit to a risk-off stance in earnest ahead of the release of the first-quarter earnings report from Nvidia (NVDA), the poster child for speculative fervor linked to the artificial intelligence (AI) sector.

After the dust settles on that announcement, financial markets will have to contend with a flood of purchasing managers index (PMI) data from S&P Global covering some of the world’s leading economies. Surveys of Japan, Australia, the Eurozone, the United Kingdom and the U.S. are due to cross the wires Thursday.

Will PMI data bring back global recession fears?

Market watchers expect to see that economic conditions in the U.S. held broadly steady in May after April marked a slowdown from a buoyant first quarter. Standstill in the manufacturing sector coupled with analysts expecting tepid growth on the services side to produce a modest pace of overall expansion.

S&P Global U.S. PMI
Source: S&P Global

Observers expect analog data from Europe, Australia, and Japan to deliver comparable results. Minor month-to-month adjustments are broadly projected to keep the pace of worldwide economic activity growth at an even keel.

However, analytics from Citigroup warn that U.S. and global data outcomes have been weakening relative to forecasts over the past month. That may set the stage for disappointing results that could revive global slowdown fears.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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