PMI numbers come in strong for April

The Eurozone economy showed further sign of resilience in the release of the April PMI numbers. The composite number rose to 54.4, up from 53.7 a month earlier and beating market expectations. The gains were largely down to better than expected performance in the services component which rose to 56.6, up from 55 a month earlier and representing its best performance since April last year. Manufacturing was weaker, however, with the preliminary April PMI print falling to 45.5 from 47.3 in March. Among the initial release of country data, services in both France and Germany was the outperformer, rising month/month and beating market expectations. Eurozone-wide GDP for Q1 will be released this week with markets now expecting that the bloc will have avoided recession in the first three months of the year.

In the UK, PMI numbers for April also came in stronger than expected. The composite PMI for the month rose to 53.9, up from 52.2 a month earlier, with services rising strongly to 54.9 from less than 53 a month earlier. The manufacturing sector did slow, similar to the broader Eurozone indicators. The healthy PMI print for the UK follows on another hot inflation print for March with the CPI slowing to only 10.1% y/y from 10.4% a month earlier and ahead of market estimates. The drop was largely down to lower fuel prices as core goods and services prices remained stable. The relative resilience in the UK economy and the still high inflation numbers will firm up expectations for the Bank of England to hike rates by 25bps at the mid-May MPC meeting.

For the US, preliminary PMI prints from S&P Global showed a similar trend to peer economies with the composite number rising to 53.5 in April, up from 52.3 a month earlier, with services leading the way while manufacturing did return to the growth side of the indicator. The positive print should help add to arguments that the Federal Reserve will hike once more at its early May FOM meeting, hiking rates by 25bps. Several Fed speakers came out in support of taking rates above 5% in recent days with Loretta Mester of the Cleveland Fed and Raphael Bostic from Atlanta supporting further tightening. Neither of the regional presidents are voters on the FOMC this year. However, Patrick Harker from the Philadelphia Fed does vote and said he supported some “additional tightening.”

Today’s Economic Data and Events

• 12:00 GE IFO Business Climate April: forecast 93.4

• 16:30 US Chicago Fed national activity index March: forecast -0.2

Fixed Income

• US Treasury yields popped higher at the end of the week thanks to the better than expected PMI prints for April and some hawkish Fed commentary, all of which has firmed up anticipation that the Fed will hike at its May FOMC meeting. Yields on the 2yr UST rose by about 4bps on Friday to close the week at 4.1816% while the 10yr closed up by 4bps at 3.5718%.
• European bonds were broadly weaker at the close of the week with 10yr bund yields up almost 4bps at 2.476% and French 10yr yields up by 4bps to 3.038%. Gilt yields managed to close lower by 1bps at 3.752%.
• S&P lowered their outlook on Egypt’s sovereign rating to negative from stable citing issues around stabilizing the Egyptian pound’s exchange rate and “high external financing needs.” S&P affirmed Egypt’s rating at ‘B.’

FX

• Currency markets traded in a choppy range over much of the week with no clear direction setting in. The dollar index closed the week broadly stronger, up by about 0.3%, but was mixed against individual peers. EURUSD closed up on Friday at 1.0986 and managed to close the week roughly flat while GBPUSD barely changed on Friday to close at 1.2432 but added about 0.2% for the week as a whole. USDJPY had a quiet Friday but ended the week higher by 0.3% at 134.16.
• Commodity currencies were more resolutely negative with USDCAD adding 1.2% to end the week at 1.3537. AUDUSD fell by 0.2% last week, closing at 0.6692 while NZDUSD dropped more than 1% to settle at 0.6139.

Equities

• The S&P 500 and NASDAQ ended the day fractionally higher on Friday, up 0.1%, although both were slightly lower over the week with investors digesting a slew of largely mixed earnings results.  
• European stocks ended Friday higher, with the Euro Stoxx 50, CAC 40 and DAX indices all closing 0.5% higher, while the FTSE 100 rose by a more muted 0.15% on the day.

Commodities

• Oil prices posted their first weekly loss in the last five weeks last week as the narrative swung back to the impact of tighter monetary policy on growth and oil demand. Brent futures fell 5.4% last week to close at USD 81.66/b while WTI dropped to USD 77.87/b, down 5.6%, and Murban sank 6.4% to USD 81.56/b.
• Russia’s president, Vladimir Putin, and Saudi Arabia’s crown prince, Mohammed bin Salman, reportedly discussed oil market cooperation in a bilateral call at the end of last week with press reports saying there was “satisfaction with the level of coordination” to maintain oil market stability.