The Turkish central bank kept its benchmark one-week repo rate on hold at 50.0% at its May MPC meeting yesterday, in line with expectations. This marked the second consecutive hold from the TCMB and the aggressive tightening implemented since June last year (a cumulative 4,150bps of hikes over 10 meetings) has likely now come to an end even as price growth remains elevated (69.8% y/y in April). The bank’s communiqué noted that ‘Recent indicators point to a slowdown in domestic demand compared to the first quarter’, and that given the ‘lagged effects of monetary tightening’, keeping rates on hold was the correct course of action. Rate cuts are likely some way off still, however, until ‘a significant and sustained decline in the underlying trend of monthly inflation is observed.’
The Central Bank of Egypt also kept its benchmark interest rates on hold at its meeting yesterday, leaving the overnight deposit rate at 27.25%. The bank’s commuiqué noted that both headline and core inflation had already peaked and that it expected an ongoing moderation in price growth through the year and a ‘significant decline’ in H1 2025. The CBE also noted that the improved external financing conditions following the increase in international support in recent months should also provide disinflationary support. We expect that the CBE will remain on hold through the next several meetings before cutting by a cumulative 200bps at the final two meetings of the year.
PMI data out of the major European economies was mixed for May according to preliminary estimates. Germany’s composite PMI published by HCOB improved to 52.2 from 50.6 a month earlier thanks to improvements in both the manufacturing and services components. However, The France composite PMI dropped below 50 in May, reversing the single month it spent above the level delineating expansion from contraction. Both the services and manufacturing components were below 50 in May though manufacturing was less weak than anticipated. In both France and Germany, output prices were modest for April, helping to feed into a disinflationary trend at work in the Eurozone economy. In the UK the headline composite PMI dropped to 52.8 in May from 54.1, missing market estimates. The dropped was down to weaker than expected services activity (52.9 in May from 55 a month earlier).
The US S&P Global PMI for May improved to 54.4, its strongest print since April 2022. The manufacturing component beat expectations at 50.9 for the month, up from 50.0 a month earlier, while services jumped to 54.4 from 51.3. Input prices were also higher, at almost their highest level since Q3 2023.
Inflation in Japan slowed in April to 2.5% y/y for the headline CPI measure. Core inflation, stripping out food prices, rose by 2.2% in April, down from 2.6% a month earlier. The Bank of Japan has only just begun to normalize policy and is likely to keep tightening its policy stance even amid the relatively low levels of inflation.
The UAE has said it will invest USD 10bn into Pakistan’s economy following a visit of the country’s president to Abu Dhabi. No specific sectors were announced for the targeted investments but the funds would help to provide an anchor of external finance for Pakistan’s economy which has entered into an IMF programme.
Today’s Economic Data and Events
Fixed Income
FX
Equities
Commodities