Several Preliminary Purchasing Manager Surveys Support Cautious Optimism

May 22, 2014

Late Wednesday, investors were heartened by the dovish tone of the FOMC minutes.  News that China’s HSBC-compiled purchasing managers index for manufacturing had risen 1.6 points to a 5-month high of 49.7 provided another upbeat impulse to the mood. 

In other PMI news, Japan’s factory PMI rose 0.5 points to a 2-month high of 49.9.  While consistent with negative 2Q growth, the report shows that post-consumption tax headwinds are not accelerating. 

Euroland’s composite PMI scored a 53.9 in May, almost as good as April’s 54.0 reading, better than the March score of 53.1, in line with market expectations, and consistent with 2Q GDP growth of around 0.5%.  By comparison, GDP rose 0.2% last quarter.  The manufacturing PMI of 52.5, a six-month low, was worse than forecast, but the services PMI of 53.5 constitutes a near three-year peak and was better than analyst forecasts.

Germany’s composite PMI of 56.1 matched April’s stellar reading and suggests GDP is expanding around 0.8% this quarter.  Like the Ezone results, the manufacturing index was at a 6-month low in Germany, but the services index hit a 35-month high.

France continued to flounder, recording a sub-50 composite PMI of 49.3, down from 50.6 in April and 51.8 in March.  Orders and jobs contracted more rapidly than in April.  The manufacturing PMI was at a 4-month low, and services fell to a 3-month low.  Both components were below 50, implying a contraction of activity.

Overnight dollar movements were limited to upticks of 0.2% against sterling and the yen and 0.1% versus the euro, Aussie dollar and kiwi.  The dollar is steady relative to the loonie, Swissie and yuan.

Share prices advanced in the Pacific Rim by 2.1% in Japan, 1.2% in Indonesia and Taiwan, 1.0% in Australia, 0.4% in South Korea and 0.5% in Hong Kong.  Chinese equities slid 0.2%.  In Europe, moreover, stocks are down 0.8% in Italy and 0.2% in France and Spain.  The German Dax has firmed 0.2%.

The WTI oil price, $104.04 per barrel, remains elevated but is not higher than at Wednesday’s close.  Gold advanced 0.7% to $1,297.20 per ounce.

The 10-year German bund yield edged up a basis point, while the 10-year British gilt slid a basis point.  The Japanese JGB held steady.

Elections for the EU parliament began today and will run through Saturday.

There’s been an interest rate cut to 9.5% from 10% in Turkey.  An interest rate announcement is scheduled also today at the South African Reserve Bank.

According to the second estimate of British 1Q GDP growth, the economy expanded 0.8% on quarter, same as the flash, and 3.1% on year, up from 2.7% in 4Q13.  But the release of more complete information about components of demand last quarter revealed unexpected drops of 1.0% in exports and 1.1% in imports.  The U.K. index of services rose 0.9% last quarter.  Total business investment increased 2.7% on quarter and 8.7% on year.

The Confederation of British industries’ monthly index of industrial trends showed a smaller-than-anticipated revival to zero from -1 in April and +6 in March.

The French business sentiment index among manufacturers dipped to a 2014 low of 99 in May from readings of 100 in April and 101 in March, according to the statistical agency Insee.

Greece’s current account deficit narrowed very sharply to EUR 44 million in March from EUR 709 million in February.  Danish retail sales ticked up 0.1% for a second straight month in April and were 2.6% greater than a year earlier.  Icelandic wage inflation accelerated to 4.8% last month from 4.5% in March.  Irish producer prices fell 2.7% between April 2013 and last month.  Norwegian unemployment fell unexpectedly by 0.2 percentage points to 3.3% in March.

Both Australia and New Zealand expected inflation data were reported.  A somewhat higher 4.4% increase over 2 years is expected in the former, and New Zealand consumer prices are seen climbing 2.1% over the coming year.

Hong Kong consumer price inflation slowed 0.2 percentage points to 3.7% in April.

Scheduled U.S. data releases today include weekly jobless insurance claims and monthly existing home sales, index of leading and coincident indicators, Chicago Fed National Activity Index, Kansas City Fed manufacturing index, and the Markit Economics report of the U.S. manufacturing PMI.  Canada reports retail sales.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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