The headline reading is a 22-month low but the more standout detail is that manufacturing output actually contracted for the first time since the early days of the pandemic and lockdowns in Europe. This pretty much provides a comprehensive overview of what is happening across the region as industrial activity is hit by rising prices:
The fear now is that a recession may be looming towards the latter stages of the year. S&P Global notes that:
“Eurozone manufacturing has moved into decline in June, with production dropping for the first time for two years amid a steepening downturn in demand. Orders for goods have fallen at an accelerating rate over the past two months, dropping in June in every country surveyed with the exception of the Netherlands, and even here the rate of growth has weakened markedly in recent months.
“Demand is now weakening as firms report customers to be growing more cautious in relation to spending due to rising prices and the uncertain economic outlook.
“The downturn looks set to gain momentum in coming months. Inventories of both raw materials and unsold stock are rising due to lower than expected production and sales volumes respectively, hinting that an inventory correction will act as an additional drag on the sector in coming months. Backlogs of work are meanwhile falling, which is often a prelude to firms reducing operating capacity, and business confidence in the outlook has fallen to the gloomiest for just over two years.
“Supply for many important inputs also remains constrained, and concerns over energy and food supply have added to nervousness about the future.
“One upside to the recent weakening of demand is an alleviation of some supply chain constraints, which has in turn helped cool inflation pressures for industrial goods. With the survey data indicating an increasing likelihood of the manufacturing sector slipping into a recession, these price pressures should ease further in the third quarter.”
Major currencies are observing light changes to start the day with the dollar keeping on firmer footing going into month-end trading. I’d reserve judgment for any notable trending moves until after today but then with it being a Friday tomorrow, there might be little appetite to go chasing anything substantial with the weekend just around the corner. Mind you, it is also a long weekend in the US with the 4th of July holiday coming up.
Stocks saw more of a push and pull again in Wall Street before closing little changed, with only the Dow slightly higher. US futures are pointing lower on the day and that is making for more of a cautious mood for the time being.
Slumping vehicle production played a large role in the stunning collapse in Japanese industrial output in May:
Total worldwide production at eight Japanese automakers declined on the year for a third straight month in May as lockdowns in Chinese cities continued to hold up shipments of key parts.
Output fell … more than 30% from May 2019
supply chains look unlikely to return to normal for some time to come.
Six of the eight companies logged declines for May. Only Nissan Motor and Suzuki Motor reported growth, reflecting particularly weak showings in 2021. Daihatsu Motor, Mazda Motor and Honda Motor all suffered double-digit drops.