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Eurozone PMI composite hits 12-month high at 52.3, pointing to 0.3% GDP growth in Q2

    By
    ActionForex
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    In May, Eurozone’s PMI Manufacturing rose from 45.7 to 47.4, surpassing expectations of 46.6 and marking a 15-month high. PMI Services remained unchanged at 53.3, slightly below the forecast of 53.5. PMI Composite increased from 51.7 to 52.3, reaching a 12-month high.

    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone’s economy is “gathering further strength.” He highlighted that new orders are growing at a healthy rate, and companies’ confidence is reflected in a steady hiring pace.

    Additionally, de la Rubia pointed out some positive developments for ECB. Rates of inflation for input and output prices in the services sector have softened. This trend supports ECB’s apparent stance to cut rates at the upcoming meeting on June 6.

    Incorporating PMI numbers into their GDP nowcast, de la Rubia suggested that Eurozone will likely grow at a rate of 0.3% during Q2, effectively dispelling fears of a recession. He further indicated that GDP growth rate of nearly 1% could be achievable this year, with potential for even higher growth.

    Full Eurozone PMI release here.

    Also released, French PMI Manufacturing rose from 45.3 to 46.7 in May. PMI Services fell from 51.3 to 49.4. PMI Composite fell from 50.5 to 49.1, back in contraction.

    Germany PMI Manufacturing rose from 42.5 to 45.4 in May, a 4-month high. PMI Services rose from 53.2 to 53.9, an 11-month high. PMI Composite rose from 50.6 to 52.2, a 12-month high.

    Japan’s PMI manufacturing rises to 50.5, first expansion in a year

      By
      ActionForex
      -

      Japan’s PMI Manufacturing rose from 49.6 to 50.5 in May, exceeding expectations of 49.7 and signaling improving business conditions for the first time in a year. Meanwhile, PMI Services declined from 54.3 to 53.6, and PMI Composite inched up from 52.3 to 52.4.

      Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, noted that Japan’s private sector expansion accelerated for the third consecutive month, reaching its fastest pace since August 2023. This suggests continued growth momentum midway through Q2, hinting at a better GDP reading after the disappointing Q1 results.

      Pan highlighted that the expansion in business activity remained “services-led,” but the “near-stabilization” of manufacturing output offers hope for broader growth later in the year.

      Both input cost and output price inflation rates eased, indicating “softer inflationary pressures across official gauges.” However, manufacturers continue to face rising cost pressures, partly due to “yen fluctuations,” which remain an important factor to monitor.

      Full Japan PMI release here.

      Australia PMI composite dips to 52.6, increasing cost pressures

        By
        ActionForex
        -

        Australia’s PMI Manufacturing remained steady at 49.6 in April, a joint 9-month high. PMI Services dropped slightly from 53.6 to 53.1, while PMI Composite decreased from 53.0 to 52.6.

        Warren Hogan, Chief Economic Advisor at Judo Bank, noted that PMI remains “firmly in expansionary territory,” and pointed to growth at “around the long-term trend rate, if not a touch higher”.

        However, Hogan warned that weak consumer spending will drag on growth in the first half of the year. Despite this, businesses are still hiring, with the employment index reaching a 6-month high.

        Composite input price index hit a 6-month high, with service industry cost pressures rising slightly. Hogan remarked, “This does not suggest a material step down in domestic inflation pressures in Q2.”

        Additionally, manufacturing input prices hit a one-year high in May, raising doubts about further deflation in domestic goods prices. This has been crucial in bringing inflation below 4% over the past year. Any increase in goods inflation, alongside high service sector inflation, poses a significant concern for RBA, which expects inflation to decrease over the next 18 months.

        Full Australia PMI release here.

        NZ retail sales up 0.5% in Q1, ending two-year downturn

          By
          ActionForex
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          New Zealand’s retail sales volumes rose by 0.5% qoq to NZD 25B in Q1, significantly outperforming the anticipated -0.3% qoq decline. Sales values increased by 0.7% qoq to NZD 30B.

          “In the March quarter, we saw a modest increase in retail activity, with growth across most industries,” said Melissa McKenzie, business financial statistics manager. “This followed two years of declines.”

          Of the 15 retail industries, nine experienced higher sales volumes during the quarter. The most notable contributions came from food and beverage services, which rose by 2.2%, motor vehicle and parts retailing, which increased by 1.1%, recreational goods retailing, which surged by 4.7%, and accommodation, which climbed by 4.1%.

          Full NZ retail sales release here.

          FOMC minutes decidedly hawkish, DOW retreats but stays bullish

            By
            ActionForex
            -

            US stocks ended lower overnight as minutes from the latest FOMC meeting revealed a more hawkish stance than anticipated. The central focus of the minutes was the “lack of further progress” in reducing inflation towards the 2% target, which has raised fresh concerns about the persistence of inflation.

            Additionally, the minutes highlighted recent monthly data showing “significant increases in components of both goods and services price inflation,” adding to the urgency of the situation. More importantly, “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”

            Despite the hawkish tone of the minutes, it’s important to note that several influential figures, including Chair Jerome Powell and Governor Christopher Waller, have since indicated that they doubt the next move will be an interest rate hike.

            Technically, as long as 39371.92 support holds, further rally is expected in DOW in the near term. Current rise is part of the larger uptrend and should target 61.8% projection of 32327.20 to 39889.05 from 37611.56 at 42284.78. However, break of 39371.92 will bring lengthier consolidations first before the up trend resumes.

            Bundesbank sees German economy gradually gaining momentum in Q2

              By
              ActionForex
              -

              In its monthly report, Bundesbank indicated that Germany’s economic output is “likely to increase slightly again” in Q2. The general trend suggests that the economy is gradually “picking up speed,” with positive impulses expected from private consumption and a “further recovery” in the service sector.

              The Bundesbank also noted that energy-intensive sectors in industry could “recover moderately.” However, it highlighted that a broad-based increase in new orders is still lacking, which is necessary for a thorough recovery. The improved business expectations in the manufacturing sector are anticipated to significantly boost production only in the second half of the year.

              Additionally, Bundesbank expects inflation to rise again in May and fluctuate at a slightly higher level in the coming months. This is primarily due to base effects, such as the introduction of the “Germany Ticket” in local passenger transport last May, which will influence year-on-year comparisons.

              UK CPI down to 2.3% in Apr, core CPI falls to 3.9%, both above expectations

                By
                ActionForex
                -

                UK CPI slowed sharply from 3.2% yoy to 2.3% yoy in April, but above expectation of 2.1% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 4.2% yoy to 3.9% yoy, above expectation of 3.6% yoy.

                CPI goods annual rate turned negative from 0.8% yoy to -0.8% yoy. But CPI services annual rate eased just slightly from 6.0% yoy to 5.9% yoy.

                Full UK CPI release here.

                NZD/USD bounces after hawkish RBNZ hold, AUD/NZD dives

                  By
                  ActionForex
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                  NZD/USD rises sharply after the hawkish RBNZ hold today. Break of 0.6139 confirms resumption of rally from 0.5873. Further rise is now expected as long as 0.6086 support holds. Next near term target is 0.6215 resistance.

                  Current development also affirms the view that NZD/USD’s corrective fall from 0.6368 has completed with three waves down to 0.5870. Decisive break of 0.6215 should pave the way through 0.6368 to resume the rise from 0.5771 (2023 low).

                  AUD/NZD dives in tandem with broad based Kiwi strength. Immediate focus is now on 1.0852 cluster support (38.2% retracement of 1.0567 to 1.1027 at 1.0851). Sustained break there should confirm that whole rise from 1.0567 has completed. Decline from 1.1027 is another falling leg in the medium term range pattern from 1.1085, and should target 61.8% retracement at 1.0743 and below. This will remain the favored case as long as 1.0941 resistance holds.

                  RBNZ holds steady at 5.50% but signals potential hike later in 2024

                    By
                    ActionForex
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                    RBNZ kept Official Cash Rate unchanged at 5.50%, as widely anticipated. However, RBNZ surprised markets by raising its projected rate path, suggesting the possibility of another rate hike later this year. Additionally, the timeline for rate cuts has been pushed further into the latter half of 2025. According to key forecast variables, the OCR is expected to rise from the current 5.5% to 5.7% in Q4 2024 before declining to 5.4% in Q3 2025.

                    Minutes of the meeting highlighted that members agreed on the “significant upside risk” posed by persistent non-tradable inflation. They noted that the influence of recent inflation outcomes on future inflation expectations is critical for price setting, wage expectations, and the stance of monetary policy. Moreover, slower output growth than currently assumed could reduce the pace at which spending can grow without increasing inflationary pressures.

                    “Monetary policy may need to tighten and/or remain restrictive for longer if wage and price setters do not align with weaker productivity growth rates,” the minutes stated.

                    Full RBNZ statement here.

                    Japan’s exports rise 8.3% yoy in Apr, imports up 8.3% yoy

                      By
                      ActionForex
                      -

                      In April, Japan’s exports increased by 8.3% yoy to JPY 8981B, falling short of expected 11.1% growth. Nonetheless, this marks the fifth consecutive month of export growth and sets a record for April. Key contributors to this growth included hybrid cars, semiconductor-making equipment, and chips.

                      Imports also rose by 8.3% yoy to JPY 9443B, slightly below expected 9.0% increase, and set a record for the month. The weak Ten continues to inflate import costs for resource-scarce Japan, with crude oil prices jumping 17.7% yoy, compared to a 2.6% yoy increase in Dollar terms. This resulted in a trade balance deficit of JPY -463B.

                      On a seasonally adjusted basis, exports rose 0.9% mom to JPY 8843B, while imports decreased by -0.5% mom to JPY 9403B, leading to a trade balance deficit of JPY -561B.

                      BoE’s Bailey signals next move as rate cut amid expected drop in inflation

                        By
                        ActionForex
                        -

                        BoE Governor Andrew Bailey indicated overnight that he anticipates the next move in monetary policy will be a rate cut. He expects a significant decline in April’s UK inflation data, but questions remain about how long the current level of monetary policy restriction will need to be maintained.

                        Bailey addressed the IMF’s suggestion to hold a press conference after each rate-setting meeting, rather than just four times a year. He stated, “We will roll that question that the IMF have given to us into our thinking about implementing Ben Bernanke’s changes.”

                         

                        ECB’s Nagel: June cut plausible, not on autopilot afterwards

                          By
                          ActionForex
                          -

                          In a newspaper interview, ECB Governing Council member Joachim Nagel expressed optimism about the current economic outlook, noting that “wage growth is expected to moderate as inflation continues to recede.” He highlighted that recent developments are “heading in the right direction.”

                          Nagel suggested that a first rate reduction in three weeks is “plausible,” provided that incoming data and new projections align with policymakers’ expectations. However, he cautioned against rushing into additional monetary easing, emphasizing, “We should not cut rates hastily and jeopardize what we have achieved.”

                          He also underscored the high level of uncertainty, stating, “Even if rates are lowered for the first time in June, that does not mean we will cut rates further” in subsequent meetings. Nagel stressed that ECB’s approach is not automatic, saying, “We are not on auto-pilot.”

                          Fed’s Waller: Several months of data needed before supporting rate cuts

                            By
                            ActionForex
                            -

                            Fed Governor Christopher Waller emphasized in a speech today that “several more months” of favorable inflation data are necessary before he would consider supporting interest rate cuts.

                            While the latest CPI data was a “reassuring signal” indicating that inflation is not accelerating, Waller noted that the progress shown was “small.”

                            Waller highlighted that current data on spending and labor market suggest that monetary policy is at an “appropriate setting” to exert downward pressure on inflation.

                            However, “in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy,” he said.

                            Full speech of Fed’s Waller here.

                            Canada’s CPI falls to 2.7% in Apr, matches expectations

                              By
                              ActionForex
                              -

                              Canada’s CPI slowed from 2.9% yoy to 2.7% yoy in April, matched expectations. Ex-gasoline, CPI slowed from 2.8% yoy to 2.5% yoy. Gasoline prices accelerated from 4.5% yoy to 6.1% yoy. Food prices slowed from 1.9% yoy to 1.4% yoy. On a monthly basis CPI rose 0.5% mom, matched expectations.

                              Looking at the core measures, CPI median slowed from 2.9% yoy to 2.6% yoy, below expectation of 2.7% yoy. CPI trimmed slowed from 3.2% yoy to 2.9% yoy, matched expectations. CPI common slowed from 2.9% yoy to 2.6% yoy, below expectation of 2.8% yoy.

                              Full Canadian CPI release here.

                              IMF recommends BoE cut rates by 50-75 bps in 2024

                                By
                                ActionForex
                                -

                                IMF issued a report today suggesting that with UK inflation currently 2% above its neutral rate estimate, BoE should consider moving towards monetary easing.

                                IMF highlighted the risks of “delayed easing”, cautioning that while BoE emphasizes the need to wait for clearer signs of reduced inflation persistence, holding off too long could be detrimental.

                                Additionally, keeping the Bank Rate unchanged as inflation and inflation expectations decrease would “raise ex-post real rates”, which could hinder or even reverse the economic recovery. This scenario might lead to “extended undershooting of the inflation target”.

                                To address these concerns, IMF recommends that BoE implement rate cuts totaling 50-75 basis points in 2024. This would help balance the risks of premature easing against the need to support economic growth and ensure inflation remains on target.

                                Full IMF report on the UK here.

                                Eurozone goods exports down -9.2% yoy in Mar, imports down -12.0% yoy

                                  By
                                  ActionForex
                                  -

                                  Eurozone goods exports fell -9.2% yoy to EUR 245.5B in March. Goods imports fell -12.0% yoy to EUR 221.3B. Trade balance recorded EUR 24.1B surplus. Intra-Eurozone trade fell -12.4% yoy to EUR 222.1B.

                                  In seasonally adjusted term, goods exports rose 0.1% mom to EUR 237.7B. Goods imports fell -0.1% mom to EUR 220.4B. Trade surplus widened slightly from EUR 16.7B to 17.3B. Intra-Eurozone trade fell -0.5% mom to EUR 213.7B.

                                  Full Eurozone trade balance release here.

                                  RBA minutes highlight debate over rate hike

                                    By
                                    ActionForex
                                    -

                                    RBA minutes from May 7 meeting reveal that a rate hike was considered but ultimately, the decision was made to hold cash rate target steady at 4.35%. The board emphasized that recent data indicated that “risks around inflation had risen somewhat,” acknowledging the considerable uncertainty and the difficulty in “ruling in or ruling out” future changes in interest rate.

                                    The minutes detailed that raising the cash rate could be appropriate if the board believed that the staff forecasts were “overly optimistic” about the forces driving down inflation, leaving the balance of risks tilted to the upside. Additionally, a higher cash rate might be necessary even with ongoing weakness in aggregate demand if “other factors slowed the pace of disinflation.”

                                    Conversely, the decision to hold the cash rate steady was based on the view that, although there had been significant updates on the economy since the last meeting, these updates were “not sufficient to warrant a change in the stance of monetary policy.” Inflation was still declining towards the target, and the new information “did not materially alter its trajectory.”

                                    Full RBA minutes here.

                                    Australian Westpac consumer sentiment falls -0.3% mom amid budget disappointment

                                      By
                                      ActionForex
                                      -

                                      Australia Westpac Consumer Sentiment index fell by -0.3% mom to 82.2 in May. Westpac highlighted that the primary takeaways from the May survey are “no let-up in the weak consumer environment” and the cautious mindset of consumers. Consumers are more inclined to use funds from fiscal measures to repair their finances rather than go on spending sprees, which aligns with RBA’s efforts to bring inflation back to target.

                                      The May survey, conducted during budget week, provided a clear comparison of sentiment before and after the budget announcement. Sentiment among those surveyed before the budget was relatively optimistic, with an index reading of 86.8, marking a 5.3% increase from April. However, sentiment plummeted to 76.6 after the budget announcement, reflecting a 7% decline from April. This -11.8% drop in sentiment post-budget contrasts with a -7.4% decline observed last year.

                                      Full Australia Westpac consumer sentiment release here.

                                      Fed officials express caution on inflation, uncertainty over rate cuts

                                        By
                                        ActionForex
                                        -

                                        Fed Governor Philip Jefferson issued a cautious message in a speech last night, stating that while April’s inflation data was “encouraging,” it remains “too early to tell” if the recent slowdown in disinflation will be “long lasting.” He described current monetary policy as restrictive and declined to predict whether rate cuts will happen this year. He emphasized the importance of continuing to closely monitor incoming economic data, the outlook, and the balance of risks.

                                        Separately, Cleveland Fed President Loretta Mester told Bloomberg Television that she is reconsidering her earlier forecast of three interest rate cuts this year. Although not her “base case,” Mester noted that if progress on reducing inflation stalls or reverses, Fed is “well positioned” to increase rates if necessary.

                                        San Francisco Fed President Mary Daly also shared her views, expressing doubt about achieving the 2% inflation target in the near term. Daly highlighted that while there are expectations for improvement in shelter inflation, the progress is not expected to be rapid.

                                        Fed’s Barr: Not confident to start easing monetary policy yet

                                          By
                                          ActionForex
                                          -

                                          Fed Vice Chair Michael Barr stated in a speech today that while inflation has decreased from its peak of 7.1% to 2.7%, it is “not yet all the way to 2% target. He noted that inflation readings for the first quarter were “disappointing,” as highlighted in FOMC’s recent statement.

                                          “These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy by reducing the federal funds rate,” Barr noted.
                                          He added that Fed’s restrictive policy would need “some further time to continue to do its work” in bringing inflation down.

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