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US ISM punctures rate hike pause optimism, sending stocks lower

trader looking at screen

European markets have seen a slow start to the month, trying to push higher, however these gains have melted away in the afternoon session, pushing prices towards the lows of the day, after a stronger than expected ISM manufacturing report undermined the possibility of a pause in the US rate hiking cycle in September.


Today’s economic data from Europe hasn’t helped the softer narrative, as it continued to point to the challenges facing consumers from higher food and energy prices, after German retail sales collapsed by 5.4% in April.

With little signs of a respite in the cost of living, here or in the US, the recent optimism that we might be near a plateau for inflation has started to diminish, pushing up yields and causing stocks to roll over, as we get off to a negative start to the month.

Dr. Marten’s shares have been one of the bigger gainers today, rising over 25% after full year pre-tax profits beat estimates, coming in at £214.3m, while revenues also came in better than guided at £908.3m, a rise of 18%. When the company reported in January revenues year to date were at £676.9m hindered by a weak Q1, with full year revenues expected to come in at £907.5m, a rise of 17%. The fact that the company was able to overcome supply chain disruptions and rising costs, along with lockdown restrictions in Vietnam which hit its facilities there has seen the shares rise to their best levels in almost three months.

The bootmaker also upgraded its full year revenue guidance for FY23 due to its ability to raise its prices without adversely affecting consumer spending patterns. The optimistic outlook is welcome news for shareholders given the declines in the share price this year, with the shares still down over 30% year to date.

GSK confirmed it would be separating its consumer healthcare business later this month to form Haleon as it demerges the business into a stand-alone entity to start trading on the London Stock Exchange on 18th July.  

This will complete the process that enables GSK to focus solely on the biopharmaceuticals side of the business as it looks to develop new vaccines and innovative medicines. It remains to be seen whether management will rue the decision to turn down the £50bn bid by Unilever earlier this year, for what will be henceforth known as its Haleon business.    


Having ended May on a downbeat note, US markets have opened higher today helped by some positive reactions to earnings announcements after last night's close.

This positive open has given way to a slight softening in the wake of the latest ISM manufacturing numbers which has seen the latest headline number edge higher in May to 56.1, while prices paid has remained resilient, slipping back by less than expected to 82.2 from 84.6. April job openings declined slightly from 11.85m in March to 11.4m in April.

The resilience of these numbers, along with a hawkish Bank of Canada, has seen US and Canadian yields move higher for the second day in succession.

The Canadian central bank raised interest rates by 50bps which was in line with expectations, however the statement suggested more aggressive hikes were likely, due to the risks of elevated CPI becoming entrenched. The risks of this “has risen”, with the US 10-year yield, rising above 2.90%, and up over 17bps since the end of last week.  

Salesforce shares have risen sharply after reporting Q1 earnings that beat expectations. Revenue came in at $7.41bn with its Slack acquisition helping to fuel a 24% increase here. The company said it expects full year revenues to rise to $31.8bn, although profits may well be inhibited by the strength of the US dollar.  

HP’s Q2 results saw revenues come in at $16.5bn, ahead of forecasts of $16.2bn, while profits came in at the upper end of expectations at $1.08c a share. Most of the gains came from its desktop PC business, with strong demand in that area, particularly from corporates. Its personal systems division saw revenue rise by 9.2% to $11.5bn in a trend that matched that of Q1, although consumer demand for laptops was weaker.

The PC maker also raised its earnings outlook due to strong demand from business customers, increasing its full year adjusted profits forecast to $4 31c a share.

Delta Airlines shares are also higher after the airline upgraded its revenue outlook for Q2 to between $12.4bn and $12.5bn, and back close to levels it was in 2019. This is helping to give a lift to the likes of American Airlines and United Airlines.  

We also have GameStop latest Q1 numbers after the close, with the shares up from their recent lows but still below the levels they were when they missed expectations in Q4. While revenues beat expectations at $2.25bn, Q4 saw the company post a huge loss of $1.86c a share, against an expectation of a profit of $0.84c a share. The losses appeared to be driven by higher-than-expected costs due to the hiring of extra staff as it looks to launch an NFT Marketplace by the end of Q2 2022. Investors appear sceptical that this type of move will reap significant rewards at a time when its core market shows little sign of picking up. This isn’t likely to change given the volatility seen in markets in the last few months. Expectations are for losses to come in at $1.15c a share.


The Australian dollar has edged higher after Q1 GDP came in at 0.8%, beating expectations of a 0.6% expansion. Q4 was also revised higher to 3.6% from 3.4%, and with the RBA due to meet next week, the resilience of the Australian economy could prompt the RBA to raise rates by more than is currently being priced when it meets next week.

The US dollar has taken another leg higher, after Atlanta Fed President Bostic rowed back from his earlier comments about a possible September pause to rate rises. Today’s better than expected ISM manufacturing numbers have also helped in this regard as markets price out the prospect of a September pause in the Fed’s hiking cycle.  

The Bank of Canada raised its headline rate by 50bps to 1.5%, helping to underpin the Canadian dollar in the process.

The pound and the Japanese yen appear to be suffering the most on the back of this uptick in the US dollar and the commodity currencies more broadly.     


Crude oil prices slid back from 3-month highs yesterday on reports that OPEC+ might be open to expelling Russia from its oil production deal, paving the way for a possible unilateral supply increase. The reasoning for this is that given the implementation of various sanctions many countries are prevented from buying Russian oil, meaning that any production increases aren’t being reflected in higher supply.

This means OPEC members would have to pick up the slack, which is by no means certain given most are operating at capacity. We’ve also seen a modest rebound in prices as Shanghai lockdown restrictions start to get eased, and demand expectations rise.  


B&M was the latest retailer to caution that the worsening economic climate is set to impact profitability, with yesterday’s disappointing full year results leading the share price down by some 15%. That in turn saw daily vol on the stock push out to 193% against a monthly print of 79% and with the idea that even discounters are coming under pressure, it seems likely that the broader sector could be in for a rough ride in the months ahead.

Oats prices hit fresh highs for the month yesterday, before initiating something of a reversion. The underlying whipsawed from 720 to settle around 680, a move that could reignite concerns over the role that speculators are playing on top of supply chain constraints in what could be an impending global food crisis. Daily vol pushed out to 107% against 81% on the month.

Further updates out of China that lockdown restrictions were being lifted has given the local market a boost, with e-commerce plays such as Alibaba and Pinduoduo both faring well. This has played out in gains for CMC’s proprietary China tech basket of shares which jumped higher following Monday’s market holiday in the US. Some of those gains may have been eroded as Tuesday’s session played out, but the underlying still sits close to two-month highs. Daily vol printed 161% against 138% for the month.

Other asset classes – including equity indices, fiat and crypto currencies all remain comparatively subdued.



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