Australia goods and services exports rose 3% mom to AUD 39.8B in April. Imports dropped -3% to AUD 31.7B. Trade surplus rose from AUD 2.2B to AUD 8.0B, matched expectations. Retail sales rose 1.1% mom, unchanged from preliminary results.
AiG Performance of Construction Index dropped -0.8 pts to 58.3, “largely maintaining the strong pace of post-2020 recovery following on from a record high in March”.
Philadelphia Fed President Patrick Harker said “we’re planning to keep the federal funds rate low for long.” He added, “but it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases.”
“We have to be careful in removing accommodation so that we don’t create any kind of ‘taper tantrum,'” he emphasized. “And that’s why we need to communicate very early, very often what we’re going to do.”
Fed’s Beige Book report noted that the national economy expanded at a “moderate pace”, “somewhat faster” than the prior reporting period. Several Districts cited the “positive effects” of increased vaccination and relaxed social distancing measures. Overall, “expectations changed little, with contacts optimistic that economic growth will remain solid.”
Two-third of Districts reported “modest employment growth” while wage growth was “moderate”. Businesses expected “labor demand will remain strong, but supply constrained, in the months ahead”. Overall price pressures “increased further”. Businesses anticipated facing “cost increase and charging higher prices in coming months.”
ECB President Christine Lagarde said in an annual review that “the euro remains unchallenged as the second most widely used currency globally after the US dollar”. Share of Euro across various indicators of international currency was stable, averaging around 19% in 2020.
The relative resilience of the international role of the euro despite the pandemic shock stands in contrast to the significant decline observed in the wake of the euro area sovereign debt crisis. “To some extent, this development may reflect the effectiveness of the unprecedented policy support measures and coordinated approach that have prevailed in the euro area during the COVID-19 crisis,” said Lagarde.
On the topic of digital currency, Executive Board member Fabio Panetta said, “depending on its design, a central bank digital currency may support the use of a currency in cross-border payments. However, fundamental forces, such as the quality of economic policies and institutions, as well as the depth of markets, remain the most important factors for international currency status,”
Eurozone PPI came in at 1.0% mom, 7.6% yoy in April, above expectation of 0.9% mom, 7.3% yoy. For the month, industrial producer prices in the Eurozone increased by 1.8% for intermediate goods, by 1.0% in the energy sector, by 0.5% for non-durable consumer goods, by 0.4% for durable consumer goods and by 0.3% for capital goods. Prices in total industry excluding energy increased by 0.9%.
EU PPI came in at 0.9% mom, 7.6% yoy. The highest increases in industrial producer prices were recorded in Ireland (+6.2%), Spain (+2.9%) and Estonia (+2.1%), while the only decreases were observed in Croatia (-0.4%) and France (-0.3%).
BoJ board member Seiji Adachi said in a speech, “the post-COVID-19 phase may be an opportunity for the services industry to raise the prices of their services while improving their quality.”
“As Japan’s past deflationary phase is characterized by the fact that there were almost no price rises in the domestic demand-oriented services industry, the post-COVID-19 era may afford a prime opportunity to achieve the 2 percent price stability target,” he added.
Australia GDP grew 1.8% qoq in Q1, above expectation of 1.1% qoq. Through the year, GDP rose 1.1%. Head of National Accounts at the ABS, Michael Smedes said: “With 1.8% growth in the March quarter 2021, Australian economic activity has recovered to be above pre-pandemic levels and has grown 1.1% through the year.”
RBNZ Head of Financial Markets Vanessa Rayner said in speech, “unconventional” monetary policy tools will “likely remain mainstream for as long as global central bank policy rates remain at, or near record lows”. With the OCR at current low level, RBNZ has “less space” to cut interest rates further. Also, there’s a “limit to how negative rates can go before causing adverse side effects”.
“This means that other tools that utilize the balance sheet have become an important part of the ‘package’ of monetary policy instruments that global central banks have turned to,” she added. The tools can work together in different ways, to “better calibrate an ‘optimal package’ of monetary policy tools in response to future shocks”.
Fed Governor Lael Brainard said she’s “attentive to the risks on both sides” regarding the economy now. “I will carefully monitor inflation and indicators of inflation expectations for any signs that longer-term inflation expectations are evolving in unwelcome ways,” she added.
But she added, “while the level of inflation in my near-term outlook has moved somewhat higher, my expectation for the contour of inflation moving back towards its underlying trend in the period beyond the reopening remains broadly unchanged.”
“Relative to the entrenched inflation dynamics that existed before the pandemic, the sharp temporary increases in some categories of goods and services seem unlikely to leave an imprint on longer-run inflation behavior,” she said.
“Today employment remains far from our goal,” she added. “Jobs are down by over 8 million relative to their pre-pandemic level, and the shortfall is over 10 million jobs if we take into account the secular job growth that would have occurred over the past year.”
ISM Manufacturing PMI rose to 61.2 in May, up from 60.7, slightly above expectation of 61.5. The headline index indicates expansion for the 12th month in a row. ISM said, “the past relationship between the Manufacturing PMI® and the overall economy indicates that the Manufacturing PMI® for May (61.2 percent) corresponds to a 5.2-percent increase in real gross domestic product (GDP) on an annualized basis.”
Looking at some details, new orders rose from 64.3 to 67.0. Production dropped from 62.5 to 58.5. Employment dived from 55.1 to 50.9. Supplier deliveries rose from 75.0 to 78.8. Inventories rose from 46.5 to 50.8. Prices dropped from 89.6 to 88.0.
Canada GDP grew 1.1% mom in March, above expectation of 1.0% mom. That’s the 11th consecutive monthly increase. Total economic activity was around -1% below the pre-pandemic level in February 2020.
Goods-producing industries grew 1.1% mom, while services-producing industries rose 1.1% mom. 18 of 20 industrial sectors posted increases.
Based on preliminary information, GDP has declined around -0.8% mom in April, the first fall since April 2020.
Eurozone CPI jumped further to 2.0% yoy in May, up from 1.6% yoy, above expectation of 1.9% yoy. Core CPI rose to 0.9% yoy, up from 0.7% yoy, matched expectations. Looking at the main components, energy is expected to have the highest annual rate (13.1%, compared with 10.4% in April), followed by services (1.1%, compared with 0.9% in April), non-energy industrial goods (0.7%, compared with 0.4% in April) and food, alcohol & tobacco (0.6%, stable compared with April).
Unemployment rate dropped to 8.0% in April, down from 8.1%, below expectation of 8.1%. EU unemployment rate was unchanged at 7.3%.
UK PMI Manufacturing was finalized rose to 65.6 in May, up from April’s 60.9, record high. Production growth strengthened as new work intakes rose at record rate. Output prices and input costs rose at unprecendented rates.
Rob Dobson, Director at IHS Markit, said:
“The UK PMI surged to an unprecedented high in May, as record growth of new orders and employment supported one of the steepest increases in production volumes in the near 30-year survey history. Growth is being boosted by the unlocking of economies from COVID restrictions and ongoing vaccination programs. This is being felt across the globe, as highlighted by a record rise in new export business during the latest survey month.
“The corollaries of this strong upsurge in industrial activity are increased strain on supply chains and a build-up of price pressures. Supplies of inputs into manufacturers and finished goods on to clients are both being severely disrupted by raw material shortages, port issues, COVID restrictions, post-Brexit difficulties and market forces as demand outstrips supply. Suppliers’ delivery times subsequently lengthened to one of the greatest extents on record, while input costs and selling prices both rose at unprecedented rates. With little sign of supply pressures receding, these price rises will become more visible to consumers.”
Eurozone PMI Manufacturing was finalized at 63.1 in May, up from April’s 62.9. Rises in output and new orders were slightly softer, but growth rates remained considerable. Record deterioration in vendor delivery times drove intensification of inflationary pressures.
Looking at some member states, the Netherlands (69.4), Austria (66.4), Ireland (64.1) and Italy (62.3) were at record highs. Germany dropped to 64.4, but stayed strong. France hit 248-month high at 59.4. Spain rose to 276-month high at 59.4. Greece rose to 253-month high at 58.0.
Chris Williamson, Chief Business Economist at IHS Markit said: “Eurozone manufacturing continues to grow at a rate unprecedented in almost 24 years of survey history, the PMI breaking new records for a third month in a row. Surging output growth adds to signs that the economy is rebounding strongly in the second quarter.
“However, May also saw record supply delays, which are constraining output growth and leaving firms unable to meet demand to a degree not previously witnessed by the survey.
“High sales volumes are consequently depleting warehouse stocks and backlogs of uncompleted work have soared at a record pace. While these forward-looking indicators bode well for production and employment gains to persist into coming months as firms seek to catch up with demand, the flip-side is higher prices. The combination of strong demand and deteriorating supply is pushing up prices to a degree unparalleled over the past 24 years.
“The survey data therefore indicate that the economy looks set for strong growth over the summer but will likely also see a sharp rise in inflation. However, we expect price pressures to moderate as the disruptive effects of the pandemic ease further in coming months and global supply chains improve. We should also see demand shift from goods to services as economies continue to reopen, taking some pressure off prices but helping to sustain a solid pace of economic recovery.”
Germany PMI Manufacturing was finalized at 64.4 in May, down from April’s 66.6. Rates if output and new order growth softened further from recent highs. Nearly 79% of German manufacturers reported longer input lead-times. Input cost inflation surged to record high.
Phil Smith, Associate Economics Director at IHS Markit, said: “May’s PMI survey indicates that, while still strong by historical standards, the pace of growth of Germany’s manufacturing sector is being held back by supply constraints.
“The disruption from supply shortages has continued to spread, with now almost four-in-five manufacturers reporting increased lead times on inputs and a growing number also citing an impact on output and new orders due to forced downtime.
“The disruption to supply comes hand in hand with a further surge in cost pressures, with 90% of manufacturers – far more than ever before in the survey’s 25-year history – reporting increased input prices in May. Strong demand fundamentals mean that manufacturers are able to pass on some of the burden of higher costs through unprecedented price increases of their own.
“Reassuringly, manufacturers continue to look past the current supply issues, with business expectations for activity over the year ahead sticking close to record highs and the pace of hiring continuing to accelerate as factories show an increased urgency to expand capacity. Although a symptom of the current supply issues, the successive record increases in backlogs of work bode well for output levels in the coming months as firms try to catch up.”
France PMI Manufacturing was finalized at 59.4 in May, up from April’s 58.0. That’s was also the highest level since September 2000. Both output and new orders rose at sharpest rates since January 2018. Accumulation of backlogs was steepest since November 2006. Rise in selling prices was near-record amid further acceleration of cost inflation.
Andrew Harker, Economics Director at IHS Markit, said: “Demand and production volumes continued to ramp up in the French manufacturing sector during May, with the loosening of lockdown restrictions playing a key part in this last month.
“The key challenge now for firms is being able to keep up with workloads. This is proving to be a struggle amid severe supply-chain delays and a lack of material availability. As a result, levels of backlogged work are rising sharply. We are therefore likely to see further expansions to production in the months ahead should some of these constraints start to ease, with hopefully more jobs created to help deal with backlogs.
“Inflationary pressures showed little sign of abating. On the contrary, input costs increased at the fastest pace for a decade, with output price inflation the second-fastest on record.”Commenting on the latest survey results, Andrew Harker, Economics Director at IHS Markit, said: “Demand and production volumes continued to ramp up in the French manufacturing sector during May, with the loosening of lockdown restrictions playing a key part in this last month.
“The key challenge now for firms is being able to keep up with workloads. This is proving to be a struggle amid severe supply-chain delays and a lack of material availability. As a result, levels of backlogged work are rising sharply. We are therefore likely to see further expansions to production in the months ahead should some of these constraints start to ease, with hopefully more jobs created to help deal with backlogs. “Inflationary pressures showed little sign of abating. On the contrary, input costs increased at the fastest pace for a decade, with output price inflation the second-fastest on record.”
Swiss retail sales rose 35.7% yoy in April, in real terms. In nominal terms, sales rose 34.8 yoy. That is the sharpest increase since the start of the time series back in January 2000. SVME PMI rose 0.4 to 69.9 in May, below expectation of 70.0.
GDP dropped -0.5% qoq in Q1. FSO said: “Value added dropped significantly in the service sector following the tightening of measures de-signed to contain the coronavirus pandemic. Private consumption also contracted sharply. By contrast, industry grew markedly and prevented a greater decline in GDP. There was no repeat of the economic slump experienced in spring 2020.”
Swiss National Bank, Vice Chairman Fritz Zurbruegg, said in a Corriere del Ticino interview that, “we believe the franc is still high.” “If we look at inflation, it is still very low and GDP is not yet at the pre-crisis levels,” he said. “That is why we are convinced that our expansionary monetary policy remains appropriate.”
“We have to bear in mind that in a small and open country like ours, the exchange rate has a major impact on both inflation and economic growth,” he said. “For this reason, it is important to maintain the instrument of foreign exchange interventions alongside the classic interest rate instrument.”
“Without this expansionary policy, we would have a much stronger franc, lower growth and inflation and higher unemployment,” he said. “So the average Swiss citizen is better off thanks to our policy.”
RBA left monetary policy unchanged as widely expected. Cash rate target and 3-year AGB yield target are both kept at 0.10%. Parameters of asset purchases are kept unchanged too. It maintained the pledge to keep “highly supportive monetary conditions” to support return to full employment and inflation consistent with target. Also, the conditions for rate hike are unlikely to be matched “until 2024 at the earliest.
The central bank said economic recovery is “stronger than earlier expected and is forecast to continue”. The central scenario is for GDP to grow 4.75% this year and 3.50% next. Progress in reducing unemployment “has been faster than expected”. Further decline is unemployment rate to 5% by year end is expected. Inflation and wage pressures are “subdued”.
At the July meeting, RBA will consider whether to move the target bond for the 3-year yield target to November 2024 bond. It will also decide then whether to extend the government bond purchase program after September.
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China Caixin PMI services dropped to 55.1, composite dropped to 53.8
China Caixin PMI Services dropped to 55.1 in May, down from 56.3, below expectation of 56.2. PMI Composite dropped to 53.8, down from 54.7.
Wang Zhe, Senior Economist at Caixin Insight Group said: “To sum up, the expansion in manufacturing and services maintained its momentum as both supply and demand expanded. Overseas demand was generally good, but service exports were affected by the pandemic. The job market continued to improve. In May, services recovered faster than manufacturing. Entrepreneurs were confident about the economic outlook. Inflation remained a crucial concern as the price gauges in manufacturing and services both rose last month.
Full release here.