Global Data Outcomes Still Disappointing

The global economic outlook took another hit on Thursday on disappointing PMI prints in the US and Eurozone. Fed tightening expectations continue to be dialled back but, as we outline below, this is not translating into uniform USD weakness.

• The Citi US EASI continues to trend lower, see the first chart below, making fresh lows back to 2020.
• The EU EASI also fell sharply, which is the other line on the chart. This has closed some of the wedge between the two series, albeit to +50 in EU's favor versus recent highs of close to +100.
• Downside surprises to data outcomes, relative to expectations, should bias growth expectations lower all else equal.

Fig 1: Citi US & EU EASIs Trending Lower

Source: Citi, MNI - Market News/Bloomberg

• The follow on effect of weaker data outcomes is weighing on commodity prices, as recession fears rise. The Bloomberg spot commodity index has lost a further 4.63% week to date, on top of last week's 7.3% fall.
• The second chart below overlays the 2-week change in this spot commodity index, against the 2-week change in Fed expectations for early 2023. Note the commodity price series is pushed forward by 2 weeks.
• Fed expectations for early 2023 are down around 30bps through this week, and over 40bps from mid-June highs.

Fig 2: US Fed Expectations & Global Commodity Prices

Source: MNI - Market News/Bloomberg

• A further unwinding of Fed tightening expectations is USD negative all else equal, but relative shifts also matter.
• The US yield differential has risen this week against the EUR and GBP, but has fallen against JPY, on a 2yr basis.
• While for the commodity FX bloc there is the clear headwind from lower global growth expectations/weaker commodity prices.