Nascent European Recovery Suffered a Setback in June
June 21, 2024
Euroland’s composite purchasing managers index dropped 1.3 points to 50.8 this month, according to preliminary findings. This 3-month low defied market expectations of a further advance above the 50 neutral level, having previously risen from 46.5 last October to 52.1 in May. A deceleration in demand strength suggests June’s drop is unlikely to be a single-month outlier. GDP in the joint currency bloc may yet stay positive in the second quarter but probably not by much. The composite, manufacturing, and service sector scores were each softer than anticipated. Manufacturing fell to a 6-month low of 45.6, while services slid 0.8 points to a 3-month low of 53.4.
Within the euro area, Germany’s composite PMI reading fell from a 10-month high in May of 52.4 to just 50.6, and the French composite PMI of 48.2 was also softer than forecast and at a 4-month low.
Despite a 2-month high in Britain’s manufacturing purchasing managers index, a 1.7-point plunge in services to a 7-month low of 51.2 in service sector industries depressed the U.K. composite PMI reading to a 7-month low of 51.2, almost two full points lower than street forecasts.
Japanese June purchasing manager survey results also proved disappointing. A 22-month low in services of 49.8 and a 2-month low in manufacturing caused the composite Japanese PMI reading to stagnate at a 6-month low of 50, down from 52.6 in May.
Likewise, Australia’s composite purchasing managers index sank 1.5 points to a 5-month low of 50.6, having crested recently at 53.3 in March.
Only India showed further upward momentum, with a 2-month highs in its composite, manufacturing, and service sector PMI scores of 60.9, 58.5 and 60.4.
Risk-laden equities struggled in the week’s final session against the backdrop of the aforementioned purchasing manager survey results. Asian markets closed down 1.7% in Hong Kong, 0.8% in South Korea, 0.7% in Indonesia and even 0.4% in India. Share prices in Spain and Italy have so far lost 1.0%, while the German, French and British markets each show drops of around 0.5%.
U.S. stock futures, by comparison, are treading water with support from the AI feeding frenzy and discriminating sentiment that sets the United States apart and above other economies in the challenging years triggered by the Covid pandemic. U.S. GDP and productivity have consistently outperformed the norms of other industrialized economies, and the Federal Reserve is taking longer than those other counterparts to pivot away from maximum monetary restraint.
All this helps the dollar, too. The U.S. currency strengthened overnight by 0.2% against the euro and sterling and edged up 0.1% versus the Swiss franc.
Ten-year sovereign debt yields fell by six basis points this Friday in Germany, five basis points in Italy, four basis points in Spain, three bps in the United States and France, and 1 basis point in Great Britain. But with signs of the Bank of Japan getting ready to lift its interest rate, the 10-year JGB yield marched to a different drum, rising two basis points overnight.
Bitcoin’s prices sank 1.4% overnight, while prices for gold (+0.4%) and oil (-0.2%) were narrowly mixed.
French business confidence printed at 98.8 for a third straight month in June, just shy of its long-term average represented by the 100 level. A rise in retail businesses outweighed drops in manufacturing, services and construction. The labor market index swung below 100 to a 5-month low.
British retail sales volume in May surprised forecasters on the upside, with a 2.9% monthly rebound following drops of 0.1% in February, 0.2% in March and 1.8% in April. Sales were up 1.3% compared to May 2023 but 0.2% lower than a year earlier in the 3-month period of March-May. A separate British release today of consumer confidence in June revealed a 31-month high.
Turning to Friday inflation data releases,
- Japanese consumer prices rose 0.4% on month in May, thanks to a 3.1% surge in energy costs. Core CPI went up 0.3% on month and accelerated in on-year terms to a 2-month high of 2.5%. Japan doesn’t exclude energy from its core CPI measure, but if that volatile were set apart as well as fresh food, the remaining items in the index produced a lower 2.1% rate of underlying inflation. That shows continuing downward momentum from 2.4% in April, 3.2% in February and a peak of 4.3% last August. It increasingly appears that the continuing exit path from the Bank of Japan’s multi-year massively expansive monetary stance will hinge on the trend in wage awards.
- Producer prices in South Korea went up 0.1% in May and resulted in a 13-month high year-on-year advance of 2.3%.
- Canadian producer price inflation rose 0.4 percentage points to 1.8% last month but remains much closer to its most deflationary point (-5.7% in May 2023) than its March 2022 peak of +18.1% in March 2022.
- Consumer price inflation in Hong Kong ticked 0.1 percentage point higher to 1.2% in May.
- Irish wholesale price inflation in May fell back to a 7-month low of 0.9%.
- In Lebanon, where consumer price inflation had soared to as high as 268.8% in April 2023, further substantial disinflation occurred last month to a 49-month low of 51.6%.
Interest rates were left unchanged by central banks in Moldova and Azerbaijan. Moldova’s policy rate had been reduced at the prior May meeting but by just 15 basis points to 3.6%. The rate had crested at 21.5% for a couple of months late in 2022 but then was cut to 20% in December of that year, then slashed by 15.25 percentage points during 2012 and cut by 100 basis points during the first quarter of this year. CPI inflation in Moldova has receded from 34.6% at end-2022 to 3.3% last months. In Azerbaijan, monetary officials also had reduced their interest rate last month. There where inflation imploded from 14.9% in December 2022 to 0.4% last month, the current policy rate of 7.25% remains restrictive even if its the lowest since late 2021 and down from 9.0% maintained last year from May to October.
A 0.6% drop in Canadian retail sales last month reversed nearly all of April’s advance and was the biggest monthly decline in 14 months.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British and Canadian retail sales, Central Bank of Azerbaijan, French business confidence, Japanese consumer prices, National Bank of Moldova, preliminary June 2024 purchasing manager survey results
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