Eurozone PMI manufacturing finalized at 54.6, 18-month low

    Eurozone PMI Manufacturing was finalized at 54.6 in May, down from April’s 55.5. That’s the lowest level in 18 months. Looking at some member states, the Netherlands dropped to 18-month low at 57.8. Austria dropped to 16-month low at 56.6. Ireland dropped to 15-month low at 56.4. France dropped to 7-month low at 54.6. Greece dropped to 14-month low at 53.8. Italy dropped to 18-month low at 51.9. Nevertheless, Germany rose to 2-month high at 54.8.

    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Euro area manufacturers continue to struggle against the headwinds of supply shortages, elevated inflationary pressures and weakening demand amid rising uncertainty about the economic outlook. However, the manufacturing sector’s deteriorating health has also been exacerbated by demand shifting to services, as consumers boost their spending on activities such as tourism and recreation.

    Full release here.

    CAD/JPY ready for up trend resumption as BoC hike awaited

      BoC is widely expected to raise the Overnight Rate by another 50bps to 1.50% today. Governor Tiff Macklem had recently noted that interest rates may need to go above the neutral range, estimated to be between 2% and 3%. Thus BoC should indicate that more tightening is still on the way. But Macklem would probably wait at least until July’s monetary policy report before talking about how high rates would top.

      Some previews on BoC:

      CAD/JPY’s strong rally this week suggests that correction from 102.93 has completed at 97.78 already, after drawing support from 55 day EMA. Further rise is now expected as long as 100.64 minor support holds. Firm break of 102.93 will resume larger up trend and target 61.8% projection of 89.21 to 102.93 from 97.78 at 106.25.

      China Caixin PMI manufacturing rose to 48.1, still in contraction

        China Caixin PMI Manufacturing rose from 46.0 to 48.1 in May, below expectation of 49.4. Caixin said output and new orders both declined at slower rates. Suppliers’ delivery times continued to lengthen markedly. Output charges fell, despite further rise in costs.

        Wang Zhe, Senior Economist at Caixin Insight Group said: “The negative effects from the latest wave of domestic outbreaks may surpass those of 2020. It’s necessary for policymakers to pay attention to employment and logistics. Removing obstacles in supply and industrial chains and promoting resumption of work and production will help to stabilize market entities and protect the labor market. Also, the government should not only offer support to the supply side, but also put subsidies for people whose income has been affected by the epidemic on the agenda.”

        Full release here.

        Japan PMI finalized at 53.3 in May, in-line with 2.90% increase in industrial production in 2022

          Japan PMI manufacturing was finalized at 53.3 in May, down from April’2 53.5. S&P Global noted softer expansions in production and incoming new business. Supply chain disruption encouraged firms to bolster safety stocks. Input prices rose at fourth-fastest pace in survey history.

          Usamah Bhatti, Economist at S&P Global Market Intelligence, said:

          “Both output and new orders rose at softer rates, with the latter rising at the weakest pace for eight months amid sustained supply chain disruption and raw material price hikes…

          “Disruptions were exacerbated by renewed lockdown restrictions across China, and contributed to a further sharp lengthening of suppliers’ delivery times. The deterioration in vendor performance was the joint-quickest since last October and robust overall….

          “Material shortages and logistical issues were also partly behind a sustained surge in costs. Average input prices rose at a substantial rate that was the fourth-highest on record….

          “Confidence regarding the year-ahead outlook strengthened however, underpinned by hopes that an end to the pandemic and Russia-Ukraine conflict would induce a broad recovery in demand and supply chains. This is in line with an estimated 2.9% increase in industrial production in 2022.”

          Full release here.

          Australia GDP grew 0.8% qoq in Q1, price deflator highest since 1988

            Australia GDP grew 0.8% qoq in Q1, above expectation of 0.6% qoq. GDP also grew 3.3% through the year. Nominal GDP rose 3.7%. The GDP implicit price deflator increased 2.9%, the fastest rate since March quarter 1988.

            The terms of trade rose 5.9%, with export (+9.6%) and import prices (+3.5%) both up strongly. Strong demand for Australia’s mining and agricultural commodities amidst supply constraints in other producing nations contributed to the rise in export prices.

            The domestic final demand implicit price deflator rose 1.4%. This was the strongest growth since the introduction of the Goods and Services Tax, reflecting high levels of demand and increased input costs.

            Full release here.

            BoJ Wakatabe: Necessary to persistently continue with monetary easing

              BoJ Deputy Governor Masazumi Wakatabe said in a speech, “since rises in energy and food prices are mainly caused by cost-push factors from abroad, it is desirable to respond to them through measures other than monetary policy.”

              “Possible options include fiscal policy and energy policy to reduce Japan’s dependence on petroleum and natural gas,” he added.

              For monetary policy, “it is necessary to persistently continue with monetary easing and thereby continue to steadily support the virtuous cycle in the economy and maintain an environment in which wages rise,” he said.

              “In addition, if downside risks to the economy materialize, the Bank should not rule out taking the necessary additional easing measures without hesitation.”

              Full speech here.

              Fed Bostic: There could be significant reduction in inflation this year

                Atlanta Fed President Raphael Bostic said yesterday that a pause in tightening in September might be a good idea, because market responses had been “far stronger than what we’ve historically seen.” “I want to make sure I truly understand the pace of change that’s associated with our policy response,” Bostic said.

                By September, some of the uncertainty over the economy could be resolved. Bostic expected that could lead to a “pretty significant reduction in inflation.”

                Yet, he’s “fully comfortable” to raise interest rates above neutral if inflation doesn’t come down. “The goal is to get inflation down. We’ve got to really tackle it in an intentional, persistent way,” he said. “I want to be open to both possibilities.”

                US consumer confidence dropped to 106.4, inflation remains top of mind for consumers

                  US Conference Board Consumer Confidence dropped slightly from 108.6 to 106.4 in May, above expectation of 107.3. Present Situation Index dropped from 152.9 to 149.6. Expectations Index dropped from 79.0 to 77.5.

                  “Consumer confidence dipped slightly in May, after rising modestly in April,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index was driven solely by a perceived softening in labor market conditions. By contrast, views of current business conditions—which tend to move ahead of trends in jobs—improved. Overall, the Present Situation Index remains at strong levels, suggesting growth did not contract further in Q2. That said, with the Expectations Index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run.”

                  “Meanwhile, purchasing intentions for cars, homes, major appliances, and more all cooled—likely a reflection of rising interest rates and consumers pivoting from big-ticket items to spending on services. Vacation plans have also softened due to rising prices. Indeed, inflation remains top of mind for consumers, with their inflation expectations in May virtually unchanged from April’s elevated levels. Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year.”

                  Full release here.

                  Canada GDP grew 0.7% mom in Mar, to grow 0.2% in Apr

                    Canada GDP grew 0.7% mom in March, above expectation of 0.5% mom. Services producing sectors rose 0.6% while goods-producing sectors rose 0.9%. 14 of 20 industrial sectors expanded. For Q1, GDP grew 0.8% qoq.

                    Advanced information indicates that real GDP grew another 0.2% mom in April. Output was up in the mining, quarrying and oil and gas, transportation and warehousing and wholesale trade sectors.

                    Full release here.

                    ECB de Cos to eliminate policy accommodation in very gradual manner

                      ECB Governing Council member Pablo Hernandez de Cos said he expects the end of net asset purchases at the beginning of July, followed by a first rate hike. Then there will be “another one in September, (to get us) out of the negative territory. What next would be decided “according to the circumstances.”

                      “What we can do is to eliminate progressively in a very gradual manner, all the accommodation of our monetary policy (…) we will be deciding some steps in the following weeks, and this will be enough,” de Cos said.

                      Another governing council member Ignazio Visco emphasized, “given the uncertainty of the economic outlook, the rates will have to be raised gradually.”

                      Eurozone CPI hits new record 8.1% yoy in May

                        Eurozone CPI accelerated further from 7.4% yoy to 8.1% yoy in May, another record and above expectation of 7.7% yoy. CPI core also rose from 3.5% yoy to 3.8% yoy, above expectation of 3.5% yoy.

                        Looking at the main components, energy is expected to have the highest annual rate in May (39.2%, compared with 37.5% in April), followed by food, alcohol & tobacco (7.5%, compared with 6.3% in April), non-energy industrial goods (4.2%, compared with 3.8% in April) and services (3.5%, compared with 3.3% in April).

                        Full release here.

                        ECB Villeroy: Latest inflation figures confirm necessity of gradual but resolute monetary normalization

                          ECB Governing Council member Francois Villeroy de Galhau said today, “the latest inflation figures for May, in France and in the other countries, confirm the rise that we expected, and the necessity of a gradual but resolute monetary normalization.”

                          Still, he emphasized that rates “that have been exceptionally accommodative for borrowers since 2015 will remain favorable and very supportive for the entire economy compared to historical norms.”

                          “Clarity is needed: the increase in rates in an orderly and well-managed way will be favorable for the financial sector,” Villeroy said. “It should support the profitability of French banks by increasing net activity margins.”

                          Swiss GDP grew 0.5% qoq in Q1, above expectations

                            Swiss GDP grew 0.5% qoq in Q1, above expectation of 0.3% qoq. Recovery was driven largely by the industrial sector, with manufacturing up 1.7%. This was accompanied by 1.4% rise in goods exports. But overall trade dropped -0.1%. Public health measures had significantly less impact on the economy, and accommodation and food services was the only sector to see a noticeable decline (−2.2%). In other areas of private consumption (+0.4%), there were signs of some normalization.

                            Full release here.

                            France GDP dropped -0.2% in Q1, consumer spending dropped -0.4% in Apr

                              France GDP contracted -0.2% qoq in Q1, revised down from 0.0% qoq. The contraction was linked to weakness of household consumption (-1.5%). General government’s consumption expenditure rose 0.2%. Total gross fixed capital formation rose 0.6%. Exports rose 1.2% with net foreign trade up 0.2%.

                              Full release here.

                              Also from France, consumer spending dropped -0.4% mom in April, below expectation of 0.4% rise.

                              Bitcoin heading to 55 D EMA as near term rebound resumes

                                On the back of improving market sentiment, Bitcoin rises through 31407 resistance to resume the rebound from 25083. Further rally is now expected to 55 day EMA (now at 34297). Sustained break there will further affirm the case that whole decline from 68986 has completed with three waves down to 25083.

                                It’s still a bit too early to confirm a bullish trend reversal for the moment. But even as a corrective rebound, firm break of 44 day EMA should pave the way to 38.2% retracement of 68986 to 25083 at 41853 at least. For now, this will remain the favored case as long as 27993 support holds.

                                WTI oil to clear 120 as EU bans 2/3 of Russia import immediately

                                  WTI crude oil is extending recent rally and it’s now eyeing 120 handle. EU leaders finally agreed yesterday to embargo on seaborne oil imports from Russia, which covers more than two-thirds of the imports. Another one-third is delivered via the Druzhba pipeline. Also, the embargo would be raised to 90% once Poland and Germany, which are connected to the pipeline, stop buying by the end of the year. The remaining 10% temporarily exempt including imports to Hungary along with Slovakia and Czech.

                                  “This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine. Maximum pressure on Russia to end the war,” European Council President Charles Michel said in a tweet.

                                  WTI crude oil’s break of the near term channel resistance suggests upside acceleration. 118.57 near term resistance is also taken out. As long as 114.27 support holds, further rally would be seen, back towards 131.82 high.

                                  Nevertheless, current rally from 93.47 is tentatively seen as the second leg of the medium term corrective pattern from 131.82. Hence, a firm break of 131.82 is not expected for now while sideway trading could extend for some more time.

                                  China PMI manufacturing rose to 49.6 in May, services rose to 47.8

                                    The official China PMI manufacturing rose from 47.4 to 49.6 in May, matched expectations. PMI Services rose from 41.9 to 47.8, above expectation of 45.2. PMI Composite also rose from 42.7 to 48.4.

                                    “This showed manufacturing production and demand have recovered to varying degrees, but the recovery momentum needs to be strengthened,” said Zhao Qinghe, senior statistician at the NBS.

                                    Japan industrial production dropped -1.3% mom in Apr, expected to return to growth in May

                                      Japan industrial production dropped -1.3% mom in April, much worse than expectation of -0.2% mom. It’s also the first decline in three months. The seasonally adjusted production index for the manufacturing and mining sectors stood at 95.2 against 100 for the base year of 2015.

                                      Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected output to return to growth in May, gaining 4.8%, followed by a 8.9% rise in June.

                                      Also from Japan, unemployment rate dropped from 2.6% to 2.5% in April, lowest in two years. Retail sales rose 2.9% yoy, above expectation of 2.6% yoy.

                                      Fed Waller supports 50bps hikes for several meetings

                                        Fed Governor Christopher Waller said in a speech, “longer-range inflation expectations have moved up from a level that was consistent with trend inflation below 2 percent to a level that’s consistent with underlying inflation a little above 2 percent.”

                                        When these expectations are “anchored”, “they influence spending decisions today in a way that helps inflation move toward our target,” he added.

                                        “To ensure these longer-term expectations do not move up broadly, the Federal Reserve has tools to reduce demand, which should ease inflation pressures,” he said”.

                                        “I support tightening policy by another 50 basis points for several meetings”. In particular, “I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2 percent target.” Additionally, Waller said he supports “having the policy rate at a level above neutral” by the end of this year.

                                        Full speech here.

                                        AUD/JPY rises on risk-on sentiment, ready for up trend resumption?

                                          On the back of risk-on sentiment, AUD/JPY rally resumed the rally from 87.28 today, and hit as high as 91.67 so far. The development affirms the case that correction from 95.73 has completed with three waves down to 87.28. Further rally should be seen as long as 89.63 support holds. Next target is 94.00 resistance.

                                          Also, while the pull back from 95.73 was deep, it was held above 85.78 resistance turned support, as well as 55 week EMA. Medium term bullishness is maintained. Firm break of 94.00 will argue that whole up trend from 59.85 (2020 low) is ready to resume through 95.73. In that case, next medium term target will be 100% projection of 59.85 to 85.78 from 78.77 at 104.70.