Is that rock bottom?
Preliminary PMI manufacturing figures recovered to 40.6 in May from 32.6 previously while the services-sector index rose to 27.8 from 13.4 in April. Despite these releases producing the second-lowest on record and indicating a steep economic contraction, there was an element of optimism that the worst had been seen in April, but significant concerns remain that the recovery would be very slow.
UK CBI industrial trends orders index declined to -62 for May from -56 previously, below forecasts. Output also fell at the fastest pace since surveys began with exports orders declining sharply and companies expect a further output slide for the next three months. UK bond yields declined further with the 2-year yields declining to -0.05%, further undermining Sterling support, as speculation over negative interest rates persisted. The Euro’s move to 1.1111 triggered selling interest causing a fall back to near 1.1175 whilst the Pound retreated to near 1.2200 on the Dollar. UK retail sales declined 18.1% for April compared with expectations of 16.0% with a 22.6% annual decline. Underlying sales declined 15.3% on the month, close to consensus forecasts. The government budget deficit increased very sharply to £61.4bn for April, close to the 2019/20 total, but the initial Sterling reaction was limited.
US initial jobless claims declined to 2.4m for the latest week from 2.6m the previous week, the Philadelphia Fed manufacturing index improved to -43.1 from -56.6 previously, although slightly weaker than market expectations. The new orders index recovered to -25.7 from -70.9 as 25% of companies reported increased orders compared with zero last month, but unfilled orders declined at a slightly faster pace. Employment declined at a slower pace on the month while prices paid also declined slightly.
The US PMI manufacturing index recovered to 39.8 from 36.1 previously with the services-sector index at 36.9 from 26.7. The data overall maintained expectations of a slow economic recovery. The Dollar recovered some ground following the data with the Euro failing to hold above 1.1000 also a negative factor.
The Euro-zone PMI manufacturing index recovered to 39.5 for May from 33.4 previously and above expected forecasts of 38.0 whilst the services-sector index strengthened from 12.0 previously to 28.7.
Expectations for the next 12 months recovered for a second successive month, but employment continued to decline and prices charged declined at the fastest rate since October 2009. The data maintained expectations of slow and steady recovery as lockdown measures are gradually eased. The Euro maintained firmness ahead of the US session and once again tested but was unable to break the 1.1000 mark.
As of writing, the Euro currently trades around 1.0925 level against the Dollar.
Data to watch
07.00 GBP – Retail Sales
12.30 EUR – ECB Monetary Policy Meeting Accounts