June 23 - Stocks are looking to end the week on a negative note, with all major indexes squarely in the red at mid-day. Despite the weakness, Wall Street is continuing to show a sense of calm with the VIX hovering around the 13 level. The dollar is adding to yesterday's gains as it rallies to trade near the 102.6 level at the time of writing. Treasury yields have firmed from their morning lows, though still moderately weaker on the day, with 10-year yields trading near 3.75% while 2-year yields trade near 4.76%. Crude oil has also bounced from its lows earlier in the session but remains in the red, with the nearby WTI contract trading below the $69 level while the ags fall sharply as well.
S&P Global's U.S. Composite PMI was revised slightly lower, dropping to 54.3 in May from its preliminary reading of 54.5 but still showing improvement from the 53.4 seen in April. In fact, this was the fastest expansion in U.S. business activity seen for the index since April 2022. The expansion was driven largely by the service sector, with S&P's U.S. Services PMI coming in at 54.9, albeit downwardly revised from its initial 55.1 reading. Regardless, this was also the strongest reading for the indicator since April 2022 as demand for services continues to show strength. However, the U.S. manufacturing sector continues to weigh on growth, with S&P's U.S. Manufacturing PMI being revised 0.1 lower to a 48.4 final reading in May. This was a reverse in course after breaking back into expansion territory in April after five consecutive months of contraction. The Kansas City Fed's Manufacturing Production Index also added to the negative sentiment, with its June reading contracting further to -10 from the -2 reading seen in May. One other interesting takeaway from today's PMI data was the improvement to the employment portion of the respective indexes. The ongoing strength in the U.S. labor market continues to prove an issue for the Fed, as it knows it must slow the demand for workers to tame wage inflation while doing so will require inflicting further pain on the economy, which continues to weigh on the market after Jerome Powell's hawkish comments to Congress this week.
Worsening economic conditions in Europe are also weighing on the market today with this morning's preliminary HCOB Eurozone Composite PMI falling to 50.3 in June, well below analyst estimates of a 52.5 reading and the 52.8 seen in the month prior. This is now the second consecutive monthly drop in Eurozone PMI and marks the lowest level seen since January, further clouding the economic outlook for Europe in the second half of 2023. Similar to the U.S., the services sector continues to outperform the manufacturing sector, allowing the Composite PMI to hold narrowly in expansionary territory. However, the European services sector showed unexpected weakness in today's data, with the Eurozone Services PMI falling to 52.4 in June, well below expectations of a 54.5 reading and a sharp drop from the 55.1 seen in May. Weakness in the European manufacturing sector continues to worsen, with its June PMI falling to 43.6 despite expectations of remaining unchanged from May's 44.8 reading. This is the worst contraction in European manufacturing business activity seen since the initial fallout of the COVID pandemic in early 2020. Same as the U.S. Fed, Europe's Central Bank also knows it must inflict pain on its economy to win its battle with inflation and is now squarely in the midst of doing so. More rate hikes from the ECB are expected in the months to come, though this growing weakness adds to their challenges ahead.
Ukraine's long-awaited counteroffensive continues to gradually push forward, with Ukrainian military officials saying today that they have stopped a Russian offensive in the east while also making further gains in the south. While Ukraine claims the counteroffensive has allowed them to recapture eight villages thus far, they have not reached the more heavily-fortified lines of Russian defense yet and continue to temper expectations as they acknowledge the slow nature of this operation. With the escalation continuing as both sides report heavy losses for the other, the outlook for the Black Sea grain initiative continues to worsen, adding more questions to the grain and oilseed markets going forward.
