The S&P Global Manufacturing PMI for June is at 52, which is better than the expected 51. This indicates that manufacturing activity is on the rise. All the information here is for your knowledge only and should not be seen as investment advice. You should research thoroughly before making any investment choices.

Investing and Risks

Investing in the open market involves risks, including the chance of losing money and emotional stress. Individuals are fully responsible for the results of their investment actions. As of now, neither the author nor anyone related holds shares of the mentioned stocks or has business ties with the relevant companies. Compensation for this article comes solely from the publishing entity, not from any outside sources. These sources do not provide professional advice and are not liable for any inaccuracies, missing information, or any financial results related to this information. Mistakes and corrections may happen, and everything is shared without warranty. A PMI reading above 50 typically indicates growth, while below 50 suggests decline. With June at 52, it confirms a positive trend. This is the third month in a row above this important point and the highest since April 2022, showing a slight acceleration. This increase follows a period of weakness in manufacturing that began in mid-2022, mainly due to rising interest rates that affected orders and inventory. Looking closely at the data reveals some mixed signals. New orders were the biggest contributor, showing their strongest increase in over a year. Export demand also rose, though only slightly, suggesting that global demand may be stabilizing after being shaky for two quarters. Notably, input costs increased unexpectedly, surprising many. While price pressures are still much lower than in 2022, a rise in supplier prices could lead to higher output costs by Q3 if this trend continues.

The Next Steps

The effects of this data are already noticeable. Yields on short-term bonds increased, causing the market to lower its expectations for rate cuts this year. Swaps are now indicating fewer changes from major central banks, leading to a shift away from bets on looser monetary policy. This might be a turning point, even if subtle. Additionally, yields on the 2-year note reacted more strongly than those on the 10-year note, which suggests that short-term bonds are currently sensitive to macroeconomic data. Quick reactions often happen at the beginning of the curve and can become exaggerated with minor data changes. For those considering short-term volatility, especially in equity-linked contracts and interest rates markets, the PMI results combined with stronger pricing data may disrupt current momentum. Existing long-volatility positions may need adjustments. This environment often creates short periods of heightened volatility, especially during summer when trading volumes tend to drop and noise increases. The possibility of core goods inflation rising again should not be ignored. Williamson noted in this report that supply chain pressures are starting to reappear, especially concerning materials and components. This can impact discretionary producers, potentially leading to more cautious pricing in the near term, meaning some consumer sectors could face unexpected pressures. We believe it’s wise to remain flexible in the upcoming sessions. Calendar spreads that were leaning towards lower prices now need to be more aware of shifts in input costs. Larger asset allocators may also re-hedge as uncertainty about rate changes resurfaces. Additionally, structured equity positions sensitive to the manufacturing sector may influence short-term risk adjustments and pricing in the options market. We should also keep an eye on how cross-asset volatility correlates. If volatility in rates increases while volatility in equities remains low, that difference could benefit trades focused on dispersion. However, this only applies if correlations between asset classes stay stable, which isn’t guaranteed given recent disconnects between bond and equity markets. Ultimately, we should watch for how the futures curve responds and how implied volatility changes over the next two expiration cycles. Signs of lasting inflation in upstream sectors—while activity remains above contraction levels—could lead to greater risks in gamma-heavy strikes, particularly in sectors highly sensitive to industrial demand. In the near term, we prefer to be responsive rather than taking a directional stance. The data did not greatly exceed expectations, but it did shift the balance a bit. For structured positioning, this may be enough to start modifying exposure, especially where Vega or convexity exceeds comfort levels. Create your live VT Markets account and start trading now.

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