Market movers today
- US ISM manufacturing for May is expected to rise a bit from an already high level. US Markit PMI already released for May reached a new high for the time series (since 2010).
- We also get PMIs in most of the world, and we expect them to underline the overheating in manufacturing once again. We look for the overheating to continue into the summer months before easing up during H2.
- We project a rise in euro area flash inflation for May above the 2% threshold for the first time since October 2018. Much of the increase is still driven by energy base effects, but we also look for a slight recovery in core inflation to 1.0% on the back of firming service prices.
The 60 second overview
Manufacturing: Asian manufacturing largely decelerated in May with Korea, Vietnam and Taiwan PMI all declining but remaining above the 50 threshold. The final PMI reading in Japan was revised upwards to 53.0 from 52.5 but shows the same pattern. In China, Caixin PMI which focuses on smaller firms, increased slightly to 52.0 in May from 51.9 as domestic and export demand picked up. Firms continue to struggle with increasing raw material costs as a sub-index for input costs stood at a 13 year high in Korea and the highest since 2016 in China.
Equities: Trading on Monday was subdued, with the UK and US both closed for public holidays. European market closed mostly lower with Stoxx 600 -0.6%, after a bunch of green sessions and by doing so, sealed the fourth consecutive month of gains. Despite most sectors in red there was no classic risk off-session as defensives led the declines. Utilities were the worst performer, along with health care. Meanwhile, autos, travelling and materials were among the winners. Asian equities are mostly gaining this Tuesday morning with South Korea and China outperforming, but Japan lagging. Likewise, US futures are slightly higher with S&P futures ticking up 0.1%, but small caps lagging.
FI: It was a fairly quiet day in the financial markets with modest movements in stocks and bonds with UK and US closed due to market holidays. Yesterday, we got preliminary inflation data from EU for May as well as inflation data from Germany. We again received some fairly high inflation data and the risk remain on the upside in the short term.
FX: Yesterday was uneventful with most crosses moving sideways on a day where the US and the UK were out (Bank holidays). This may be the case over the next few weeks unless we get some positive/negative macro surprises or unexpected changes to central bank rhetoric.
Credit: There was no trading in iTraxx yesterday. However, HY bonds tightened 2bp while IG was unchanged.
Nordic macro and markets
In Sweden it is hard to imagine a further increase in PMI price expectations and delivery times since some of these variables are at all-time highs or two decade highs. We anticipate declining numbers in May and from here on. In our view this would be suggestive of recent supply disruptions retreating and, hence, the potentially negative impact on production and inflation expectations.
