04 June 2020
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ISM non-manufacturing activity index edged higher in May

The Institute for Supply Management said its non-manufacturing activity index edged higher to 45.4 in May from 41.8 in April.


By Emirates NBD Research


The Institute for Supply Management (ISM) said its non-manufacturing activity index edged higher to 45.4 in May from 41.8 in April. April’s figures where the lowest since March 2009 and first contraction since December 2009. The reading for the services sector, which accounts for two-thirds of US economic activity, indicates the sector remains in contraction as it came in below the 50 mark which separates contraction from expansion. The report came after the ISM’s manufacturing survey on Monday showed factory activity easing off an 11-year low in May, with sentiment surveys suggesting the slump in economic activity triggered by COVID-19 is bottoming out. The ISM survey’s measure of new orders for the services industry increased to 41.9 in May from 32.9 in April, while the employment component edged up to 31.8 last month from 30.0 in April. April figures for both employment and new orders components where the lowest since the series started in 1997. 

The number of people out of work in Germany rose by 238,000 to 2.875mn according to data published by Germany’s labor office for the month of May. This pushed the unemployment rate in Germany to 6.3% in May from 5.3% in April. German companies requested to put 1.06 million people on reduced working hours under the government’s Kurzarbeit short-time working scheme from May 1 to May 27, this according to the country’s labor office.  Short-time work is a type of state aid that allows employers to switch employees to shorter working hours during an economic downturn keeping them on the payroll

The Bank of Canada held its key overnight interest rate steady on Wednesday, cutting down some market operations and reducing estimates of the economic impact of the downturn. The moves come after the Central Bank slashed rates three times to a record low 0.25% in back March and launched its first large-scale bond buying program as a response to the coronavirus pandemic and lower oil prices. The central bank said while the outlook for the second half of the year and beyond remains "heavily clouded," it now expects the Canadian economy to resume growth in the third quarter. The BoC said that given improving market conditions, it would reduce the frequency of its term repo operations to once per week and its program to buy bankers' acceptances to bi-weekly.

ISM non-manufacturing survey

Source: Bloomberg, Emirates NBD Research

Fixed Income

Treasuries closed sharply lower as risk sentiment improved further. The curve bear steepened with yields on the 2y UST and 10y UST ending the day at 0.19% (+3 bp) and 0.74% (+6 bps) respectively.

Regional bond markets rallied for a second consecutive trading session. The YTW on Bloomberg Barclays GCC Credit and High Yield index dropped -6 bps to 3.39% and credit spreads tightened 12 bps to 2.68%.


The euro advanced for a seventh straight day against the dollar amid an upbeat market mood, its longest winning streak since 2013. The currency breached the 1.1200 mark and now trades at 1.1210. The DXY index saw the dollar continue its bearish form to fall to 97.460. USDJPY rallied and is currently hovering around the 108.90 area.

Sterling looked to consolidate its gains for the week, earning modest gains to trade at 1.2540. Services PMI in the UK were slightly better than expected, but still reflecting a deep contraction. The AUD was largely unchanged after reversing a lot of its gains this morning, whilst the NZD continued to advance, increasing by 0.75%.


Developed market equities continued their positive run. There appears to be little stopping this relentless rally fueled by optimism over the economy and a rather obvious central bank put. The S&P 500 index and the Euro Stoxx 600 index added +2.5% and +1.4% respectively.

Regional markets traded more mixed. The Tadawul dropped -0.9% on the back of weakness in in banking sector stocks while the DFM index added +0.8%.Emaar Malls added +2.2% as malls were allowed to operate at 100% capacity in Dubai.


Oil prices have reversed overnight gains in early trading today as doubts creep into the market as to whether OPEC+ will endorse an extension of deep cuts beyond June. Brent is back below USD 40/b, down 1.5% at USD 39.20/b while WTI is off by 2% at USD 36.51/b. Disputes over the level of compliance with output cuts, particularly by Iraq, appear to be derailing attempts to keep production lower for longer even as both Saudi Arabia and Russia have reportedly come to an agreement.

US crude inventories fell by 2.1m bbl last week although builds across much of the rest of the barrel and into the SPR helped push overall petroleum stocks up by nearly 20m bbl. Production fell by another 200k b/d while product supplied sank by nearly 900k b/d. Most of the decline was in ‘industrial’ fuels like distillates or jet.

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Written By


Emirates NBD Research Research Analyst

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