Chicago PMI Surge Throws Cold Water on Rate-Cut Hopes
The Chicago PMI index has climbed to 57.6 in July, exceeding forecasts and beating June's reading of 56.7. This marks three consecutive months above the 50 line that separates expansion from contraction.
Before breaking above 50, the index spent over 25 consecutive months in contraction territory. The May spike to a multi-year high of 62.7 was seen as a surprise by most economists, but July's reading suggests it was not a fluke.
The Chicago PMI is produced by ISM Chicago and serves as a leading indicator for the national ISM Manufacturing PMI. When Chicago's numbers move, national data tends to follow.
The turnaround in manufacturing is notable given the headwinds the sector has faced, including elevated energy prices due to Middle Eastern geopolitical tensions. Despite these pressures, expansion is holding, indicating strong underlying demand that can absorb higher input costs.
Stronger economic data makes a pivot towards more aggressive rate cuts less likely for the Fed. Tighter-than-expected policy keeps the US dollar stronger, historically creating a headwind for crypto prices.
The difference between four cuts and two cuts in a calendar year can translate into billions of dollars in market cap across the crypto ecosystem.