US PMI data set to show continued economic expansion in November

The S&P Global preliminary PMIs for November are likely to show little variation from the October final readings.
Markets are undecided on whether the Federal Reserve will lower the policy rate again in December.
EUR/USD remains technically bearish ahead of the PMI data.

S&P Global will publish the preliminary estimates of the United States (US) Purchasing Managers Indexes (PMIs) for November on Friday. The indexes result from surveys of the senior executives in the private sector. They are meant to indicate the overall health of the economy, providing insights into key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories.

S&P Global releases three indexes: the Manufacturing PMI, the Services PMI the Composite PMI, which is a weighted average of the two sectors. Readings above 50 indicate that economic activity in the private sector is expanding, while figures below 50 represent contraction. These indexes are released every month in advance of other official figures, becoming a key leading indicator of the status of the economy.

In October, the S&P Global Composite PMI arrived at 54.1, suggesting that the private sector continued to grow at a healthy pace. “October’s flash US PMI survey signaled a further solid rise in business activity to mark a robust start to the fourth quarter,” S&P Global said in the press release. “Growth was driven solely by the service sector, however, as manufacturing output contracted for a third month running. Meanwhile, employment fell slightly for a third successive month amid uncertainty ahead of the presidential election.”

What can we expect from the next S&P Global PMI report?

Investors foresee the flash Manufacturing PMI improving slightly to 48.8 in November from 48.5 and expect the Services PMI to edge higher to 55.3 from 55.

A poor performance of the manufacturing sector would come as no surprise, and the expected uptick would likely neutralize concerns, particularly if the Services PMI keeps indicating a solid expansion in the sector.

Market participants will scrutinize comments about inflation and employment in the surveys. Following Federal Reserve (Fed) Chairman Jerome Powell’s cautious remarks about further policy easing, markets dialed down expectations for another rate reduction in December. According to the CME FedWatch Tool, the probability of a 25 basis points cut at the last policy meeting of the year currently stands at about 55%, down from above70% early last week.

Powell argued that they don’t need to be in a hurry to lower interest rates, citing ongoing economic growth, a solid job market and inflation that remains above the 2% target. “If data let us go slower, that’s a smart thing to do,” he added.

In case the Services PMI unexpectedly comes in below 50, the immediate reaction is likely to trigger a US Dollar (USD) selloff. On the other hand, the USD could gather strength against its rivals if the Services PMI remains near the market consensus and the Manufacturing PMI rises into the expansion territory above 50.

Investors could see a stronger chance for a Fed policy hold in December if PMI surveys highlight rising input inflation in the service sector, alongside favorable conditions in the labor market. Conversely, softer price pressures and a lack of growth in private sector payrolls could revive optimism about further policy easing and weigh on the USD.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

When will the October flash US S&P Global PMIs be released, and how could they affect EUR/USD?

The S&P Global Manufacturing, Services and Composite PMIs report will be released on Friday at 14:45 GMT and is expected to show manufacturing output is still in trouble while the service sector remains the strongest.

Ahead of the release, Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical overview of EUR/USD:

“The near-term technical outlook for EUR/USD remains bearish. The Relative Strength Index (RSI) indicator on the daily chart stays well below 40, while holding slightly above 30, suggesting that the pair has more room on the downside before turning technically oversold.”

“If EUR/USD closes the week below 1.0500 (round level) and confirms that level as resistance, technical sellers could remain interested. In this case, 1.0450 (October 2023 low) could be seen as the next support before 1.0350 (May 2022 low). Looking north, first resistance could be spotted at 1.0600 (static level, round level) before the 20-day Simple Moving Average (SMA) at 1.0700.”

Economic Indicator

S&P Global Composite PMI

The S&P Global Composite Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging US private-business activity in the manufacturing and services sector. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for USD.