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Swiss CPI slowed to 2.2% yoy in May, slightly above expectations

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    ActionForex
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    Swiss CPI rose 0.3% mom in May, slightly below expectation of 0.4% mom. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.2% mom. Domestic products prices rose 0.3% mom. Imported products prices rose 0.1% mom.

    Comparing with May 2022, CPI slowed from 2.6% yoy to 2.2% yoy, above expectation of 2.1% yoy. Core CPI was unchanged at 2.2% yoy. Domestic products prices slowed from 2.6% yoy to 2.4% yoy. Imported products prices fell notably from 2.4% yoy to 1.4% yoy.

    Full Swiss CPI release here.

    China Caixin PMI services rose to 57.1, overall economy lacks internal drive

      By
      ActionForex
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      China Caixin PMI Services rose from 56.4 to 57.1 in May, above expectation of 55.2. The rate of expansion was the second-steepest seen over the past two-and-a-half years. PMI Composite rose from 53.6 to 55.6, highest since end of 2020.

      Wang Zhe, Senior Economist at Caixin Insight Group said:

      “In general, it remains a prominent feature of the Chinese economy that the services sector is stronger than manufacturing. In May, the Caixin China services PMI showed that services activity was picking up overall, but employment expansion and market optimism weakened. In the manufacturing sector, employment deteriorated, prices plunged, and manufacturers also became less optimistic toward the outlook, according to the Caixin China manufacturing PMI.

      “This divergence highlights that economic growth is lacking internal drive and market entities lack sufficient confidence, underscoring the importance of expanding and restoring demand. Currently, stabilizing employment, increasing income and bolstering expectations through proactive fiscal policy should be prioritized given a dire job market and mounting deflationary pressure.”

      Full China Caixin PMI services release here.

      Japan PMI services finalized at record 55.9, overall growth accelerated in Q2

        By
        ActionForex
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        Japan PMI Services was finalized at 55.9 in May, up from April’s 55.4, setting another fresh series record. PMI Composite was finalized at 54.3, up from April’s 52.9, the second strongest reading since record began in 2007, after October 2013.

        Usamah Bhatti, Economist at S&P Global Market Intelligence, said: “The record expansion in activity among service providers, coupled with a renewed increase in manufacturing production contributed to a stronger increase in overall private sector activity.

        “The rate of expansion was solid and the second-strongest in the history of the series (behind October 2013). The upturn was led by the dominant services sector, although there was a renewed sense of optimism for private sector activity given the expansions in manufacturing output and new orders.

        “Latest data also provides the indication economic growth has accelerated in the second quarter of the year, following the 1.3% year-on- year increase in growth in the first quarter of 2023, according to the latest official statistics.”

        Full Japan PMI services release here.

        Oil prices surge as Saudi Arabia pledges additional production cut

          By
          ActionForex
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          Oil prices shot up in response to an announcement from Saudi Arabia, the world’s leading exporter, to slash production by an additional 1 million barrels per day starting in July. This voluntary reduction from the Saudis comes on the heels of an agreement by OPEC and their allies, including Russia, to curtail supply into 2024.

          Collectively referred to as OPEC+, this group accounts for approximately 40% of the world’s crude oil production. The group currently has cuts of 3.66 million barrels per day in place, which translates to about 3.6% of global demand.

          The latest move by Saudi Arabia may take many by surprise, given that the most recent adjustments to quotas were implemented just a month ago. Consequently, the oil market is poised to tighten even further in the second half of 2023.

          Technically speaking, however, WTI crude oil is just extending near term range trading. It’s currently struggling to break through 55 D EMA decisively. Rejection by 55 D EMA would set the stage for another fall through 64.19 low to resume the medium term down trend sooner rather than later. Even though sustained break of 55 D EMA could bring stronger rebound, 83.46 will still represent a significant medium term resistance to overcome.

          US NFP rose 339k, unemployment rate rose to 3.7%

            By
            ActionForex
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            US non-farm payroll employment grew 339k in May, well above expectation of 180k. The figure was in line with the average monthly gain of 341k over the prior 12 months.

            Unemployment rate rose from 3.4% to 3.7%, above expectation of 3.5%. Labor force participation rate was unchanged at 62.6%. Number of unemployed persons rose by 440k to 6.1m.

            Average hourly earnings rose 0.3% mom, matched expectations. Average workweek edged down by -0.1 hour to 34.3 hours.

            Full US NFP release here.

            ECB Panetta: Policy debate to shift from ‘how high?’ to ‘how long?’

              By
              ActionForex
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              In an interview with Le Monde, ECB Executive Board Fabio Panetta noted, “Given the extraordinary level of economic uncertainty, estimating the terminal rate is challenging.”

              “I don’t think this is the time to be too hasty in raising rates, given the considerable ground we have already covered.” He added “my intuition suggests that we have not reached the end of our rate-hike cycle, though we’re not far away from it.”

              As for the future of ECB’s monetary policy, Panetta indicated a shift in focus. “I think the policy debate will soon shift away from ‘how high?’ to ‘how long?’,” he stated.

              He identified the strength of the labour market and firms’ profit strategies as the main threats to price stability but pointed out, “so far there are no clear indications of a self-sustained wage-price spiral.”

              In addressing core inflation’s lagging pattern behind headline inflation, Panetta observed, “it (core inflation) is now proving to be persistent even after energy inflation has gone down. But we can expect it to come down eventually too. In this respect, yesterday’s figures are encouraging.”

              He concluded by warning that the effects of ECB’s monetary tightening could potentially lead to “a prolonged weakness in economic activity or even a technical recession” if domestic demand continues to falter.

              Full interview with Panetta here.

              US non-farm payroll in spotlight, NASDAQ presses key resistance

                By
                ActionForex
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                Main focus now turns to US non-farm payroll report today. Markets are expecting 180k job growth in May. Unemployment rate is expected to tick up from 3.4% to 3.5%. Meanwhile, average hourly earnings are expected to show another month of robust 0.3% mom growth.

                Looking at some related economic data, ISM manufacturing employment rose slightly from 50.2 to 51.4, but ISM services data is not released yet. ADP private job data showed strong 278k growth. Four-week moving average of initial jobless claims fell slightly from 239k to 230k. There is nothing in these data that show significant loosening in the job market, not to mention weakness.

                Fed funds futures are now pricing in 76% chance of a “skip” at upcoming FOMC meeting on June 14. Meanwhile, there is around 60% chance of another 25bps hike in June to 5.25-5.50%. The landscape could change quite notably if there is surprises in today’s data.

                NASDAQ is back pressing key cluster resistance at 13181.08 after brief retreat earlier in the week. The level represents 100% projection of 10088.82 to 12269.55 from 10982.80 at 13163.53, as well as 50% retracement of 16212.22 to 10088.82 at 13150.52.

                Decisive break of this 13150/80 handle will confirm underlying bullish momentum in NASDAQ, and could prompt upside acceleration to 161.8% projection at 14511.22. Let’s see how NASDAQ reacts to today’s data.

                BoJ Ueda: No time frame to achieve inflation target, but not so long as 10 years

                  By
                  ActionForex
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                  In a parliamentary address today, BoJ Governor Kazuo Ueda said “The time it takes for the impact of monetary policy to appear on the economy could move around a lot depending on circumstances.”

                  “We therefore do not have any time frame in mind” in achieving the inflation target, he added.

                  “Having said that, our baseline view is that it won’t take so long as over 10 years. We’ll still seek to hit the target at the earliest date possible,” he remarked.

                  Ueda reiterated that the Bank of Japan’s purchases of Real Estate Investment Trusts (REITs) form part of their expansive monetary easing strategy. He noted, “We are conducting the purchases (of REITs) as part of our massive monetary easing program. Given it will take more time to achieve our price target, we will maintain the easy policy.”

                  Fed Harker: We are clearly in restrictive, we can sit there for a while

                    By
                    ActionForex
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                    Philadelphia Fed President Patrick Harker recommended a pause in interest rate hikes at the upcoming FOMC meeting, stating. “It’s time to at least hit the stop button for one meeting and see how it goes,” he said yesterday.

                    Harker also noted, “I think we are at the point, or very close to the point now, where we are clearly in restrictive territory, and we can sit there for a while,” he explained. “We don’t have to keep moving rates up, and then have to reverse course quickly.”

                    Looking ahead, Harker expects the US economy to grow less than 1% this year, and anticipates unemployment rate, currently at 3.4%, to increase to around 4.4%. Additionally, he forecasts a decrease in inflation to 3.5% this year and 2.5% next year, predicting it to reach Fed’s 2% target only by 2025.

                    US ISM manufacturing dropped to 46.9, corresponds to -0.6% GDP annualized GDP contraction

                      By
                      ActionForex
                      -

                      US ISM Manufacturing PMI dropped from 47.1 to 46.9 in May, below expectation of 47.0. Looking at some details, new orders dropped from 45.7 to 42.6. Production rose from 48.9 to 51.1. Employment rose from 50.2 to 51.4. Prices dropped sharply from 53.2 to 44.2.

                      ISM said: ” “This is the seventh month of contraction and continuation of a downward trend that began in June 2022. That trend is reflected in the Manufacturing PMI’s 12-month average falling to 49.4 percent.”

                      “The past relationship between the Manufacturing PMI and the overall economy indicates that the May reading (46.9 percent) corresponds to a change of minus-0.6 percent in real gross domestic product (GDP) on an annualized basis.”

                      Full US ISM manufacturing release here.

                      US jobless claims rose to 232k, slightly below expectations

                        By
                        ActionForex
                        -

                        US initial jobless claims rose 2k to 232k in the week ending May 27, slightly below expectation of 236k. Four-week moving average of initial claims dropped -2.5k to 229.5k.

                        Continuing claims dropped -6k to 1795k in the week ending May 20. Four-week moving average of continuing claims dropped -1.5k to 1789k.

                        Full US jobless claims release here.

                        US ADP jobs grew 278k, pay growth slowing substantially

                          By
                          ActionForex
                          -

                          US ADP private employment grew 278k in May, well above expectation of 167k. By sector, goods-producing jobs grew 110k while service-providing jobs grew 168k. By establishment size, small companies added 235k jobs, medium companies added 140k, large companies cut -106k.

                          Job changers saw a gain of 12.1% yoy, down a full percentage point from April. For job stayers, the increase was 6.5% yoy in May, down from 6.7% yoy.

                          “This is the second month we’ve seen a full percentage point decline in pay growth for job changers. Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.” Nela Richardson, Chief Economist, ADP said.

                          Full US ADP release here.

                          Eurozone CPI slowed to 6.1% yoy in May, core CPI down to 5.3% yoy

                            By
                            ActionForex
                            -

                            Eurozone CPI slowed from 7.0% yoy to 6.1% yoy in May, below expectation of 6.3% yoy. CPI core (ex-energy, food, alcohol & tobacco) slowed from 5.6% yoy to 5.3% yoy, below expectation of 5.3% yoy.

                            Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in May (12.5%, compared with 13.5% in April), followed by non-energy industrial goods (5.8%, compared with 6.2% in April), services (5.0%, compared with 5.2% in April) and energy (-1.7%, compared with 2.4% in April).

                            Full Eurozone CPI release here.

                            UK PMI manufacturing finalized at 47.1, downturn deepened

                              By
                              ActionForex
                              -

                              UK PMI Manufacturing was finalized at 47.1 in May, down from April’s 47.8, hitting the lowest level in four-months. S&P Global noted the output contracted in investment and intermediate goods sectors. Input costs fell and supply chain pressured subsided.

                              Rob Dobson, Director at S&P Global Market Intelligence, said:

                              “The UK manufacturing downturn deepened in May, with output, new orders and employment all falling at increased rates. Manufacturers are finding that any potential boost to production from improving supply chains is being completely negated by weak demand, client destocking and a general shift in spending in the UK away from goods to services.

                              ” These factors are also driving a broad decrease in demand from overseas amid reports of lost orders from the US and mainland Europe. The retrenchment in export demand is also being exacerbated by some EU clients switching to more local sourcing to avoid post-Brexit trade complications.”

                              Full UK PMI manufacturing release here.

                              Eurozone PMI manufacturing finalized at 44.8, weakness in demand increasingly evident

                                By
                                ActionForex
                                -

                                Eurozone PMI Manufacturing was finalized at 44.8 in May, down from April’s 45.8, hitting the worst level in 36 months. PMI Manufacturing output dropped from 58.5 to 46.4, a 6-month low. Factor gate prices declined fro the first time since September 2020.

                                Looking at some member states, Ireland (47.5), Italy (45.9), the Netherlands (44.2) and Germany (43.2) were all at 36-month low. Austria hit 37-month low at 39.7. France recovered to 2-month high at 45.7.

                                Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “The weakness in demand in the manufacturing sector, which has become increasingly evidence since the beginning of the year in falling PMI readings, has now led the surveyed companies to reduce their production for the second month in a row”.

                                Full Eurozone PMI manufacturing release here.

                                China Caixin PMI manufacturing rose to 50.9, activity improved

                                  By
                                  ActionForex
                                  -

                                  China Caixin PMI Manufacturing rose from 49.5 to 50.9 in May, signaling the first improvement in the health of the sector since February. Caixin noted stronger increase in output as firms saw fresh upturn in new business. Input costs fell solidly. Employment, however, continued to decline as business confidence softened.

                                  Wang Zhe, Senior Economist at Caixin Insight Group said: “In a nutshell, manufacturing activity improved in May. Both supply and demand expanded, but employment sank to a three-year low. Businesses stepped up purchasing, inventories of raw materials grew marginally, logistics picked up, prices continued to slump, and manufacturers’ optimism wavered.”

                                  Full China Caixin PMI Manufacturing release here.

                                  Japan PMI manufacturing finalized at 50.6, a decisive turnaround

                                    By
                                    ActionForex
                                    -

                                    Japan PMI Manufacturing was finalized at 50.6 in May, up from April’s 49.5. That’s the first expansionary reading since October 2022, signalling a modest overall improvement in operating conditions. Also, business optimism reached highest level since January 2022, while supplier performance stabilized.

                                    Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The latest au Jibun Bank PMI survey highlights a decisive turnaround in manufacturing sector performance during May and brings to an end a six-month period of weakening business conditions.”

                                    Full Japan PMI manufacturing release here.

                                    IMF sees opportunity for Japan to re-anchoring Inflation Expectations

                                      By
                                      ActionForex
                                      -

                                      IMF chief economist, Pierre-Olivier Gourinchas, suggested that a unique opportunity may be presenting itself in Japan to re-anchor inflation expectations to BoJ’s target. However, he cautioned that the process won’t be instantaneous.

                                      “There’s an opportunity right now,” Gourinchas said, “but it will take time. It won’t happen overnight.” Achieving this re-anchoring requires convincing the public that Japan won’t slide back into deflation – a challenge given the country’s prolonged struggle with price stagnation. Gourinchas believes it’s “too early” for the BoJ to tighten policy, stressing the need for careful handling of the situation.

                                      Pointing to the global trend of persistent inflation despite initial expectations of transitory dynamics, Gourinchas warned, “Obviously, the history of the last two years is one where inflation that was supposed to be transitory, turned out to be not transitory. We could have similar dynamics in Japan.” Given this possibility, he underscored the need for vigilance and readiness to tighten monetary policy if inflation remains too high.

                                      Regarding potential strategies for policy tightening, Gourinchas suggested a cautious approach. “It’s probably safer to first move away from the control of long-term yields. And then, if the need arises to tighten monetary policy, it can do so as part of the usual tightening of the policy rate,” he proposed. However, he acknowledged that executing this transition would be technically complex.

                                      Fed Jefferson: A pause in June doesn’t mean rates have peaked

                                        By
                                        ActionForex
                                        -

                                        Comments from top officials from Fed suggested a pause in interest rate hikes in June while possible, shouldn’t be misinterpreted as a sign that peak rates for the cycle have been reached.

                                        Fed Governor, Philip Jefferson, clarified, “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.”

                                        Jefferson, suggested that skipping a rate hike at an upcoming meeting would provide an opportunity for the committee to review more data before deciding on the extent of any further policy tightening.

                                        Philadelphia Fed President, Patrick Harker, echoed this sentiment, albeit with a more forceful argument for the need to ‘skip’ rather than ‘pause’. “I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause,” he remarked.

                                        Harker believes the current policy is nearing, if not already at, a restrictive level and suggests a period of careful reflection before further action is taken.

                                        Harker added, “I think we have to be ready that we might have to do more and I’m fully aware we have to do that and willing to do that, but I want to give it a little bit of time.”

                                        BoE Mann: Inflation gap in the UK more persistent than others

                                          By
                                          ActionForex
                                          -

                                          BoE policymaker, Catherine Mann, has highlighted the unique and mounting inflation problem that Britain is facing in comparison to the United States and the Eurozone.

                                          Mann pointed to both large-scale price increases and the rising persistence of these underlying pressures as causes for concern. She emphasized, “The gap (between headline and core CPI) that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area.”

                                          The gap she refers to is the disparity between headline inflation (which includes volatile commodities like food and energy) and core inflation (which excludes these commodities).

                                          Notably, Mann underscored the role of British businesses and increased wages in maintaining high core inflation. She explains that businesses in the UK have been successful in passing on price rises, contributing to this persistent inflation gap. This, coupled with increased wages, suggests that headline inflation has been slower to recede towards the core rate than it has in other regions.

                                          “There is a gap between the headline, which is incorporating energy which went up really high and now has come down, and core where we do start to see the implications coming through pricing channels, through wage negotiations, into something that is persistent,” Mann explained.

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