31 May 2023
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China PMI data disappoints

By Daniel Richards

China’s official PMI survey was weaker than anticipated in data released this morning, feeding the narrative that the global economy is weakening. The manufacturing PMI was at 48.8 in May, missing predictions of 49.5 and down from the 49.2 the previous month. This was the weakest reading since December and was the second sub-50.0 contractionary reading in a row. As we are seeing in the rest of the world, the services component performed better, as it was at 54.5 in May. Here too though there was a slowdown on April (56.4) and it was lower than predicted (55.2) and new orders were below 50, indicating a contraction and further pressure on what has been the growth driver in China of late down the line. The composite reading was 52.9, down from 54.4 the previous month.

Data from Japan also disappointed this morning as retail sales contracted for the first time in five months, dropping 1.2% m/m compared to expected growth of 0.5%, while industrial production fell 0.4%, missing predictions of 1.4% growth. The drop was across products, including automotives and machinery parts.

In the US, the House Rules Committee voted in favour last night for the debt ceiling deal which was reached over the weekend. The vote will now be voted on in Congress tonight, where it is expected to be carried, but there have been threats by Republican lawmakers to oppose it. Elsewhere, the Conference Board consumer confidence index came in at 102.3 for May, beating predictions of 99.0 but down on the 103.7 the previous month.

Economic confidence in the Eurozone deteriorated in May, dropping to 96.5, from 99.0 previously. This missed the predicted 98.8. As with recent PMI surveys, the services confidence component fared better than industry, with readings of 7.0 and -5.2 respectively. Both marked a worse reading than the preceding month, however. Positively for the ECB, price expectations dropped to 12.2 in May, marking the lowest reading for the survey since 2020 and down from 15.0 in April.

Today’s Economic Data and Events

  • 10:45 France CPI inflation, % y/y, May. Forecast: 5.5%

Fixed Income

  • Progress on passing the debt ceiling deal helped to lift US Treasuries overnight. The 2yr UST yield fell about 11bps to 4.4501% while the 10yr yield was down about the same amount at 3.6866%. The plan has passed though a House of Representatives finance committee to be voted on in the house later today.
  • Bond markets generally had a positive day, across both highly rated and riskier debt. Emerging market USD-bonds rallied, including Turkish 10yr USD Eurobonds where yields fell 39bps to 9.512%. Egyptian 10yr USD bonds also gained with yields down 11bps to 16.649%.
  • FAB prices a USD 600m 5yr green bond at T+95bps overnight.


  • Currency markets settled mixed amid lower USD yields. EURUSD added 0.3% to 1.0735 while USDJPY had a wide move, dropping almost 0.5% to 139.79. GBPUSD also had a strong gain, up by about 0.5% to close at 1.2414.
  • Commodity currencies were taken lower by weakness in oil prices overnight with USDCAD closing up near 0.1% at 1.3602 while AUDUSD fell 0.3% to 0.6517 and NZDUSD dropped 0.2% to 0.6044.


  • Equity markets were mixed yesterday. In the US, the S&P 500 closed flat, the Dow Jones lost 0.2% and the NASDAQ added 0.3%.
  • There was some positivity in local markets as the DFM added 0.7% and the ADX 0.8%. Saudi Arabia’s Tadawul closed flat.


  • Oil prices fell sharply overnight with both Brent and WTI futures down more than 4% to USD 73.54/b and USD 69.46/b respectively. There was no specific material catalyst for the move apart from the negativity around the macro story emanating out of China, ie; slower but not negative growth. Inventory data will be delay this week thanks to a public holiday at the start of the week in the US.


Written By

Daniel Richards Senior Economist

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