25 May 2022
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Global PMI surveys indicate economic slowdown

By Daniel Richards

  • There were a raft of PMI surveys released yesterday, with the bulk of them showing a deterioration in private sector activity as compared to a month prior. The day started with mixed results from Japan, followed by France which saw its manufacturing PMI slip to 54.5, from 55.7. Germany managed to eke out a modest improvement as its manufacturing PMI rose from 54.6 in April to 54.7 in May but this was not sufficient to boost the composite Eurozone’s manufacturing reading sufficiently as at 54.4 it missed both April’s reading and consensus predictions of 54.7. Output held up but seemingly on the back of businesses working through order backlogs, and new orders were under pressure. The Eurozone’s services PMI fell to 56.3, from 57.6 in April.
  • At 54.6, the UK’s manufacturing PMI reading also disappointed, missing consensus 55.0. But it was in the services sector that the deterioration in the economic outlook was most apparent, with the index falling from 58.9 in April to 51.8, missing consensus 57.0, and business optimism sank to levels last seen during the first lockdown. Price pressures were also prevalent across the survey, suggesting that upwards pressure on price growth will remain to the fore over the coming months.
  • There was a similar story in the US, where although the manufacturing PMI came in in line with consensus at 57.5, this indicated a slower expansion than April’s 59.2. Services meanwhile dropped from 55.6 to just 53.5, missing predictions of 55.2. The composite reading dropped to a four-month low of 53.8, from 56.0 last month. Supply chain constraints and squeezed household incomes weighed on the performance.
  • In New Zealand, the RBNZ hiked its benchmark official cash rate by 50bps to 2.0%, as had been widely anticipated. The bank sees the OCR hitting at least 3.25% this year, with a peak rate of near 4.0%. This would be higher than previously signposted, and the NZD gained in the wake of the meeting.
  • The IMF has issued a statement of preliminary findings upon the completion of its fourth review of Jordan’s EFF programme. According to the Fund, Jordan’s progress remains ‘firmly on track’, and the report cited a ‘notably strong performance on domestic revenue mobilization’, but did note still very high levels of unemployment.

Today’s Economic Data and Events

10:45 France consumer confidence, May. Forecast: 89

16:30 US durable goods orders, April, % m/m. Forecast: 0.6%

Fixed Income

  • US Treasuries fell sharply as markets discounted the path of rate hikes from the FOMC for Q3 this year. Weaker than expected housing data and more even-handed commentary from some Federal Reserve officials on how far the Fed needs to go appeared to have been the catalyst for the move higher. The curve bull steepened with yields on the 2yr UST down by 14bps to 2.4787% while the 10yr yield fell 10bps to 2.7506%.
  • Options and Fed funds futures markets have priced out one 25bps hike this year, expecting rates at the end of the year at around 2.65%. While there has been evidence of weaker data our view remains that the Fed will focus on inflation and raise rates up to 2.75% by the end of 2022.
  • European markets also caught a rally overnight as markets turned away from risk assets. Yields on the 10yr bund fell 5bps to 0.963% while the 10yr gilt yield dropped 8bps to 1.884%.
  • Turkish 10yr bonds fell as the lira accelerated its decline overnight. Yields on 10yr local currency bonds added 38bps to 23.33%, at odds with a general move to stronger emerging market bonds.


  • In currency markets, the dollar fell a second day running though performance against individual peers was mixed. EURUSD added another 0.42% to end the day at 1.0736 at markets grow more confident in the hawkish turn from the European Central Bank. A 50bps hike from ECB appears to be a serious potential for the July meeting, which would take rates up to 0%.
  • GBPUSD was the notable loser against the dollar as PMI numbers came in much weaker than expected. Sterling fell by 0.44% to 1.2532 as the near-term economic outlook remains grim with the Bank of England unlikely to take a much more aggressive stance.
  • The Japanese yen appeared to benefit from a risk-off move to quality with USDJPY falling by 0.8% overnight to 126.83.
  • In commodity currencies, Canadian dollar was the standout mover with USDCAD rising by 0.4% to 1.2819. Both AUDUSD and NZDUSD were relatively flat.
  • In emerging markets, Turkish lira fell against the dollar, pushing above the 16 handle for the first time this year. INR was flattish against the dollar at 77.59 while EGP edged upward to 18.5121.


  • Risk-off tone in equity markets was prevalent from the off yesterday, following some disappointing results in the US social media space the previous day. In Asia, the Shanghai Composite was a notable loser as it dropped -2.4% on the day, but the Nikkei (-0.9%) and the Hang Seng (-1.8%) also saw substantial losses. Most of the Asian markets are trading up modestly this morning.
  • The selling continued in Europe as the FTSE 100  the CAC and the DAX dropped -0.4%, -1.7% and -1.8% respectively. In the US the Dow Jones managed to close up 0.2% but the S&P 500 lost -0.8% and the NASDAQ fell a further -2.4% as tech stocks came under pressure once more. The index is now down -28.0% ytd.


  • Oil prices appear to be treading water until a more material fundamental catalyst provides the next direction. Brent futures settled higher by 0.12% to USD 113.56/b while WTI closed down by around 0.5% to USD 109.77/b. Saudi Arabia’s foreign minister, Prince Faisal bin Farhan, said Saudi Arabia had “done what it can” to restore stability to oil markets that that there was no apparent shortage in the market.
  • The API reported a small build in US crude inventories for last week, with stocks up by 567k bbl. However, gasoline inventories fell by more than 4.2m bbl as consumers still show no signs of substantially moderating behaviour in the face of high fuel prices.

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Written By

Daniel Richards Senior Economist

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