June Opens on Hopeful Note

June 1, 2021

Manufacturing purchasing managers survey results reveal record growth in many cases, robust business optimism, but also inflationary pressure from demand outstripping supply.

Euroland’s factory sector PMI was revised even higher to a record reading of 63.1. The Netherlands, Austria, Germany, Ireland, and Italy all scored above 62.0, and the lowest reading in the group — 58.0 in Greece — was 3.6 index points above April’s level and the highest Greek score in this 21-year-long data series.

The British manufacturing PMI reading of 65.6 also represents a record high, signifying the fastest rate of growth at least since 1992.

Record high manufacturing PMI readings were reported as well in Switzerland (69.9), Poland (57.2), the Czech Republic (61.8), and the CBA-compiled Australian index (60.4). The AIG Australian PMI (61.8) represents a 38-month high. Russia‘s index rose to a 26-month peak of 51.9, and China scored a 5-month high of 52.0. The South African Absa PMI of 57.0, Filipino reading of 49.9 and Hungary‘s of 52.8 were at 7-, 2-,¬† and 4-month highs.

Among economies whose manufacturing PMI readings in May fell below April levels, Turkey scored 49.3 (a one-year low), and India‘s 50.8 reading was at a 10-month low. South Korea’s PMI dropped 0.9 points to a 4-month low of 53.7, and Taiwan (62.0), Thailand (47.8), Malaysia (51.3), Japan (53.0). and Denmark (67.7) reported 2-month lows. Three-month lows occurred in Vietnam (53.1) and Norway (58.5). These are diffusion indices where readings of 50 separate positive growth above that line from negative growth below it.

The dollar is mostly somewhat lower, with overnight declines of 0.4% against the Mexican peso, 0.3% versus the Canadian dollar, 0.2% against the DXY weighted index, and 0.1% relative to the Australian dollar. The U.S. currency shows no change versus the euro or Swiss franc and gains of 0.2% vis-a-vis the kiwi, yuan, and sterling. Dollar/yen has edged up 0.1%.

Stock markets closed up 1.3% in New Zealand, 1.1% in Hong Kong, 0.7% in Singapore and 0.6% in South Korea and Taiwan but fell by 0.3% in Australia and 0.2% in Japan. European share prices have risen at least 1.0% in the U.K., Germany, France, and Italy, and U.S. stock futures point to a rise of about a half percent at the open.

The price of West Texas Intermediate oil has been buoyed by expectations of strong global growth and doubts that the United States and Iran will reach a nuclear agreement deal. WTI oil jumped 3% on top of last month’s solid advance, and gold is 0.3% firmer than yesterday.

Ten-year U.S. Treasury and British gilt yields rose two basis points.

Board members at the Reserve Bank of Australia left the Official Cash Rate at a record low of 0.10%, its level since a 15-basis point cut six months ago. This was the expected decision and was made in spite of a red-hot property market. A released statement from Governor Lowe reaffirms the commitment to keeping an ultra-accommodative stance for a period last years, not months:

The Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.

First-quarter GDP growth results were reported by Switzerland, Italy, the Czech Republic, Canada, Brazil and Hungary:

  • Swiss GDP fell 0.5% from levels in both 4Q and 1Q 2020. That was the fifth consecutive quarter with negative on-year growth.
  • Italian GDP was unexpectedly revised upward by a half percentage point to +0.1%, thus averting a technical double-dip recession¬† but still leaving GDP 0.8% below its year-earlier level.
  • Czech GDP fell 0.3% on quarter and by 2.1% from a year earlier. That too was a fifth consecutive year-on-year decline but well down from the plunge of 10.8% last spring.
  • Canada experienced positive growth for a third straight quarter. GDP grew 1.4% in 1Q from the fourth quarter, which was enough to secure a positive year-on-year GDP rise (0.3%) for the first time since the final quarter of 2019. GDP compiled monthly from the supply side meanwhile accelerated to a month-on-month pace of 1.1%.
  • In Brazil, real GDP not only rose 1.2% on quarter but, as in Canada, experienced its first year-on-year advance (1.0%) since the last quarter of 2019.
  • Hungarian GDP advanced 2.0%, the third quarterly rise in a row. The rate of on-year contraction in the economy narrowed to 2.1% from 3.5% in 4Q 2020 and 13.3% in 2Q20.

The unemployment rate of Euroland slipped 0.1 percentage point to 8.0% in April versus 7.3% in April of 2020.

Preliminary euro area consumer price data for May reveal a 0.4 percentage point acceleration of total inflation to 2.0%, highest since October 2018. Consistent with global circumstances, this acceleration from -0.3% last December stems from a spike in energy costs and the post-pandemic unleashing of demand juxtaposed against supply bottlenecks. Non-energy CPI inflation of 0.9% was the same as in May 2020 and far shy of the ECB’s notion of price stability. The spike in total inflation is not expected to endure or to compel a premature tightening of monetary policy.

Other data highlights this morning include:

  • A 4.4% drop in Swiss retail sales, which nonetheless were 35.7% higher than in April 2020.
  • A 10.9% year-on-year increase in retail sales in Hong Kong.
  • A record 36.9% on-year jump in Portuguese industrial production in April.
  • A 9-month low of 4.4% in German harmonized unemployment in April.
  • A dramatic turnaround in the British housing market according to the Nationwide house price index. Such was 10.9% higher in May than a year earlier compared to on-year increases of 1.8% in May 2020 and 0.6% in May 2019.
  • A wider Australian current account surplus of A$ 18.283 billion last quarter, up from A$16.0 billion in 4Q and A$ 6.92 billion in 1Q 2020.
  • A second successive quarter-on-quarter drop in Australian corporate profits.
  • A 10-month low for business confidence in Thailand but a 20-month high in Mexican business sentiment.

Still ahead: U.S. manufacturing PMI, construction spending, Dallas Fed manufacturing survey, and IBD/TIPP Optimism index.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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