U.S. Manufacturing PMI Declines For The Third Month In A Row

Key Insights

• U.S. Manufacturing PMI dropped from 47.7 in November to 46.2 in December. 
• The report met analyst consensus but did not provide support to riskier assets as traders focused on recession risks. 
• S&P 500 moved towards session lows after the release of the PMI data. 

U.S. Manufacturing PMI Met Analyst Expectations

On January 3, U.S. released the final reading of the Manufacturing PMI report, which indicated that Manufacturing PMI declined from 47.7 in November to 46.2 in December, in line with the analyst consensus. Numbers below 50 show contraction.

The report was important as traders are trying to evaluate whether Fed manages to orchestrate a soft landing for the economy. The Fed has previously signaled that it was ready to push rates above the 5.00% level in 2023.

However, the economy already feels the impact of higher rates, so some traders are ready to be that the Fed will be forced to keep rates below 5.00% this year. The PMI report highlights the negative impact of higher interest rates on the economy.

S&P 500 Retreats After PMI Data

U.S. Dollar Index rebounded towards the 104.30 level after the release of the PMI report. It remains to be seen whether the report will have a significant impact on currency markets as the numbers met analyst expectations.

Gold stays strong and is trying to settle above the resistance at multi-year highs at $1850. The pullback in Treasury yields is the key driver for gold today, so the fluctuations of the U.S. dollar should not have a major impact on gold dynamics.

S&P 500 gained downside momentum and moved to session lows. It looks that the market hoped that Manufacturing PMI would exceed expectations. Fed’s policy and recession risks are the key potential negative factors for stocks this year, so S&P 500 will remain extremely sensitive to PMI data in the upcoming months.

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