Some Reasonably Good Data Reports But Debt Ceiling Countdown Rumbling On

May 23, 2023

Preliminary purchasing managers surveys for May reported this Tuesday all exceeded the 50 level that separates activity that is expanding from activity that is contracting.

  • The S&P Global U.S. composite PMI reading rose 1.1 points to a 13-month high of 54.5, but the gulf between services (a 13-month high of 55.1) and manufacturing (a 3-month low of 48.5) widened.
  • Japan’s composite PMI jumped two full points to a 115-month high of 54.9, led by a record high reading of 56.3 in services, which had been as low as 52.3 in the first month of this year. Japan’s manufacturing PMI (an 8-month high of 50.8) also showed improvement.
  • Euroland’s composite PMI settled back 0.8 points below April’s 11-month high to a 3-month low of 53.3, mainly because of a 3-year low in manufacturing (44.6) that was mitigated by solid growth in service sector activities, which printed at 55.9.
  • Germany‘s economy showed more dynamism than France’s. The German composite PMI reading of 54.3 surpassed analyst expectations and was up from 54.2 in April and 49.5 in January. The French composite PMI fell back a full point to a 4-month low of 51.4.
  • Britain’s composite PMI also dropped a full point but reflected surprising buoyancy at 53.9 after the prior month’s one-year high.
  • Australia‘s composite PMI of 51.2 printed above 50 for the third time in four months. Manufacturing (48.0) contracted at the same pace as in April but was more than counterbalanced by a reading of 51.8 in service sector activities.

U.S. President Biden and House Speaker McCarthy each characterized yesterday’s debt ceiling talks as productive, but an agreement that stands a chance of getting through congress remains elusive. Pick your favorite cliche. The best way to view the danger of a U.S. debt default is that it won’t be over until its over or until the fat lady sings. Similar past standoffs weren’t resolved until time almost ran out. This time the politics is much more polarized than before.

In overnight financial market action, the dollar rose 0.5% against the kiwi, 0.4% relative to the Australian dollar, 0.3% versus the Mexican peso, 0.2% vis-a-vis the euro, Swiss franc, and Chinese yuan and 0.1% against sterling. Despite a 0.1% downtick against the Japanese yen, the dollar in weighted terms is near a 2-1/2 month high. Ten-year sovereign debt yields leaped 11 basis points overnight in the U.K. and are two basis points firmer in the U.S. and Germany. Prices for Bitcoin and oil are up 1.6% and 1.9%, but gold eased 0.4% and through the $2000 per ounce threshold. Equities are lower for the most part, including drops of 1.3% in China and Hong Kong, 1.1% in France, and 0.2% the S&P 500 and Nasdaq.

Euroland’s current account surplus hit a five-year high of EUR 45.0 billion March (EUR 31.2 billion seasonally adjusted) and swung to a surplus of EUR 65.3 billion in the first quarter from a EUR 8.4 billion deficit in the first period of 2022. As a percent of GDP, the net current account deficit over the past twelve reported¬† months was only 0.5%.

Inflation is well down at the producer price level. The Canadian producer price index experienced its largest 12-month decline in 35 months (-3.5%) in April, down from a 17.9% year-on-year leap in March 2022, most in 432 months. Latvian PPI inflation of 11.3% last month was down from 15.8% in March and a record high 37.7% last August.

India’s index of leading economic indicators rose by a solid 0.9% in April.

The National Bank of Hungary’s policy interest rate has once again been left unchanged at 13.0%. Prior to June 2021, such had been as low as 0.60%. It was raised subsequently to 2.4% by the end of 2021 and 7.75% by mid-2022 before 525 basis points of additional tightening done in the third quarter of last year. There have been no further rate changes since September. Meanwhile, CPI inflation of 24.0% last month remains well above the policy interest rate leveland not far below the 27-year high of 25.7% in January 2023. Central bank officials believe such will soon begin to decline much more quickly and are warning market participants not to expect an interest rate cut anytime soon.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

 

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