More PMI Results, a Draghi Press Conference, Australian GDP, and Fed Beige Book

June 3, 2015

It’s been a busy Wednesday.  Overnight many service sector purchasing manager surveys were released, some beating expectations but others falling short.  ECB President Draghi is currently doing the Q&A portion of his press conference following an announced decision not to change interest rates and the release of updated macroeconomic forecasts.  Juxtaposed with the press conference in Frankfurt are ongoing Greek debt talks in Brussels, and many of the questions put to Draghi involve the Greek situation.  Australia released first-quarter national income account figures showing the strongest quarterly growth in a year, and later today investors will get to see the latest Fed Beige Book of U.S. regional economic conditions.

The dollar has appreciated 0.8% against the Swiss franc and kiwi, 0.6% versus the loonie, 0.4% vis-a-vis the yen and sterling and 0.1% relative to the euro and Australian dollar.  The yuan is unchanged.

Share prices in the Pacific Rim fell 1.6% in Indonesia, 1.3% in India, 0.9% in Australia, 0.7% in South Korea, 0.6% in Taiwan, 0.3% in Japan, China and New Zealand and 0.1% in Hong Kong.

Share prices so far in Europe have climbed by 4.2% in Greece, 1.3% in France, 1.1% in Germany, 0.9% in Switzerland, 0.6% in Italy, 0.7% in the U.K., and 0.5% in Spain.

The ten-year JGB yield rose three basis points.  It’s British and U.S. counterparts are a basis point firmer, and the German yield is a basis point lower.

Australian GDP advanced 0.9% in the first quarter on a smaller drag from business investment.  On-year growth of 2.3% was below 2.4% in the final quarter of 2014 and 3.5% in the first quarter of 2014.

Unemployment in the eurozone eased to 11.1% in April from 11.2% in March and 11.7% a year earlier.  Retail sales volume in Euroland grew 0.7% in April, beating market expectations, and were 2.2% greater than in April 2014.  Sales of food jumped 1.3% after a 0.6% drop in March.

Poland’s central bank retained its 1.5% key interest rate, which is at a record low.  A 50-basis point cut was undertaken in March, following a 14-month interval without a rate change.

PMI results were as follows.

  • Euroland’s composite purchasing managers index edged down 0.8 points to a four-month low of May.  The services PMI dropped 0.3 points to 53.8.  Growth in output and orders were the slowest since February.
  • The U.S. non-manufacturing PMI fell back 2.1 points to 55.7.  Activity, orders, and jobs showed lessening growth, while inflation accelerated.
  • Among euro area members, Spain’s composite and services PMI readings of 58.3 and 58.4 led the group despite dipping to 2-month lows.  Upward revisions to the French composite and services scores to 52.0 and 52.8 (each 3-month highs) were responsible for somewhat firmer final eurozone-wide scores than earlier flash estimates.  Like Spain, Italy’s composite and services PMIs dipped to 2-month lows, those being 53.7 and 52.5.  German readings of 53.0 on the services index and 52.6 on the composite were each at 5-month lows.
  • Japan’s services PMI in May of 51.5 was 0.2 points higher than both the earlier flash estimate and April’s level and the best level since December.  The Japanese composite PMI of 51.6 in May followed 50.7 in April and 48.4 in March.  Business sentiment in Japan continued to weaken, however, dropping to a 14-month low.
  • According to HSBC, China recorded a 51.2 composite PMI, down marginally from 51.3 in April, despite a 0.6-point rise in the services PMI to 53.5.  Deflationary pressures in China receded.
  • India’s composite PMI fell to a 7-month low of 51.2 in May, and its services PMI, a 13-month low of 49.6, broke a streak of scores at or above 50.0.
  • Hong Kong private PMI reading of 47.6 was 1.0 below the prior month and at a 44-month trough.
  • Australia’s service-sector PMI dropped to a 4-month low of 49.6 in May from 49.7 in April, 50.2 in March, and 51.7 in February.
  • Britain’s composite PMI plunged 2.6 points to 55.8.  The services PMI, a 5-month low of 56.5, suggests growth this quarter of around 0.4%.
  • Russia’s services PMI rose 1.1 points to a 17-month high of 52.8.  New orders grew at their fastest rate in 15 months, while the composite PMI also climbed to a 17-month high (51.6).
  • In the Middle East, Lebanon’s private PMI decreased a full point to an 8-month low of 48.0.  Egypt’s non-oil PMI edged up 0.1 to a 5-month high of 49.9, conveying a flattening downturn.  Non-oil PMIs in Saudi Arabia and the U.A.E. of 57.0 and 56.4 imply solid growth but are at 12-month and 2-month lows.
  • South Africa’s private PMI weakened sharply to a 3-month low of 50.1.
  • Sweden’s services purchasing managers index improved rebounded from 53.9 in April to a 10-month high of 58.2 in May, exceeding the first-quarter average score of 57.3 as well.

The U.S. and Canadian trade positions, which more often than not move in opposite directions given their heavy two-way commerce, each improved in April.  The U.S. deficit in goods and services narrowed by almost $10 billion on month to $40.88 due to a 3.3% slide in imports.  Canada’s merchandise trade deficit fell 23% to C$ 2.97 billion.

The ADP estimate of U.S. private jobs growth in May of 201K beat forecasts by more than 10K and was 36K greater than employment growth in the prior month.

A member of the Bank of Japan’s Policy Board, Shirai, squelched hopes of a near term augmentation of monetary stimulus, calling the probability of such low.

The semi-annual OECD Outlook revised projected world growth in 2015 down a half percentage point to 3.1% and also bumped the forecast growth in 2016 down to 3.8% from 3.9%.  A 0.9 percentage point downward revision in projected U.S. growth this year to 2.1% more than offset an upward revision for Euroland growth to 1.4%.  Chinese growth is seen below 7% in both 2015 (6.8%) and 2016 (6.7%).  The forecasts for Japan are 0.7% this year doubling to 1.4% in 2016.

Shop prices in Britain fell 1.9% in the year to May, the same on-year decline as in April.

Turkish CPI inflation accelerated further to 8.1% in May from 7.9% in April, 7.6% in May, and 7.55% in February.  Producer price inflation accelerated also, reaching 6.5% in May from 3.1% in February.

Norway’s current account surplus of NOK 72.6 billion in the first quarter was 12.8% smaller than the fourth-quarter surplus.

Attention now turns to the Fed Beige Book and the Bank of Brazil’s upcoming interest rate decision.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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