The key news overnight were global manufacturing PMIs which can be summarized as follows: Japan contraction; China contraction, but less than expected (as reported before); and most recently, Europe which expanded but dropped and missed, at 52.5, down from 53.4 and below the consensus estimate of 53.2. The weakness was fully driven by France which has moved back into a contraction phase in both manufacturing and services, which were 49.3 and 49.2, down from 51.2 and 50.4, respectively (although with the recent surge in train station remodelling, the mfg aspect may soon be boosted). The market soaked up the Chinese numbers with fervor, sending the algo-controlled USDJPY into a buying frenzy which in turn pushed up US equity futures, only to see a gradual fade of the Chinese euphoria when the European data hit.
And speaking of the China PMI, Goldman was quick to pour cold water on the party:
We would treat the data cautiously as the gauge of the latest growth momentum because the HSBC PMI tends to lag mom IP. Over the past year the HSBC PMI reading appears to lag mom IP by one month. Mom IP started to accelerate in July 2013, peaked in September, and fell continuously until rebounding in March. HSBC PMI started the rebound in August, peaked in October, and fell continuously until today’s announcement. Therefore today’s data may reflect a slightly longer lag than usual instead a major rebound in the latest growth momentum. A rebound in May might have happened but we would like to see the official PMI to be released on 1st June and final reading of the HSBC PMI for further confirmation. The key in interpreting the final reading is to look at the change from the flash to final reading especially in terms of the production and new order indexes though this change is based on a relatively small sample so prone to random shocks too.
As a result despite the so-called recovery, the Shanghai Composite actually closed down 0.2%. Which perhaps is why after coming within inches of all time highs again overnight, US equity futures overnight are in danger of turning red once more.
In other news, there is another relatively quiet session ahead for US markets, with Initial claims and Existing Home Sales the main economic releases on the US calendar.
Bulletin Headline Summary from RanSquawk and Bloombeerg
- Treasuries decline, led by 7Y notes, amid PMI releases in China and Europe; trading might slow as long holiday weekend looms in U.K. and Europe and light data calendar.
- A preliminary China PMI from HSBC and Markit rose to 49.7 in May, exceeding the 48.3 Bloomberg median estimate, with a rebound in both output and orders
- Markit Economics said its PMI of euro region services activity rose to the highest in almost three years; forecasts economic growth may accelerate to 0.5% this quarter, fastest since early 2011, largely thanks to Germany
- Galvanized by the debt crisis and the EU’s 10.5% unemployment rate, protest parties in the U.K., Greece, France, Italy, the Netherlands, Austria and elsewhere are set to surge in this week’s European Parliament elections
- U.K. consumer spending rose 0.8% in 1Q, 10th straight increase, adding 0.5% to GDP that rose 0.8%
- A Russian diplomat will visit the Foreign Office in London after Prince Charles was reported to have compared Vladimir Putin to Adolf Hitler
- Sovereign yields mixed. Nikkei +2.1%, Shanghai -0.2%. European equity markets mixed, U.S. stock futures gain. WTI crude little changed, copper and gold higher
