May 24, 2023

Daily Report 24/05/2023

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The UK PMI manufacturing index declined to a 5-month low of 46.9 from 47.8 previously and below consensus forecasts of 48.0. The services-sector index also edged lower to a 2-month low of 55.1 from 55.9 and slightly below expectations of 55.5. New orders increased at a slower rate on the month while there was a marginal increase in employment. Input prices increased at the slowest rate since March 2021 while charges also increased at the slowest rate since August 2021, although price increases were still historically high. Overall business optimism declined to a 3-month low. The latest IMF update on the UK stated that the economy will no longer face a recession this year, although the GDP growth forecast was still very tepid at 0.4%.

In testimony to the Treasury Select Committee, Bank of England Governor Bailey stated that there are risks of inflation persistence and that the bank has to respond. He did, however, add that the central bank was nearer the peak in interest rates. Markets expect a peak close to 5.00%.

Key Data

Consumer Price Index YoY Prev 10.2% Act 8.7%
BoE’s Governor Bailey Speech

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The French manufacturing PMI data was marginally stronger than expected but offset by a sharper than expected slowdown in the services sector. There was the opposite position in Germany with stronger growth in services, but a sharper pace of contraction in the manufacturing sector. The Euro-Zone PMI manufacturing index dipped to a 36-month low of 44.6 for May from 45.8 and below consensus forecasts of 46.2. The services-sector index edged lower to 55.9 to a 2-month low of from 56.2, but slightly above market expectations. New business remained subdued and there was further divergence in inflation developments. Manufacturing selling prices declined for the first time since September 2020, but there was a further sharp increase in services-sector selling prices and at a faster rate than April. Overall business optimism declined to a 5-month low. The data failed to support the Euro, especially given the steeper rate of decline in German manufacturing.

The Euro attempted to rally after the New York open, but was unable to regain and lost ground again later in the session. Narrow ranges prevailed on Wednesday with the Euro managing to hold ground ahead of the Federal Reserve minutes later in the day.

 Key Data

ECB President Lagarde Speech

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On Tuesday, preliminary figures of the May monthly PMIs signalled that the US Services sector keeps outgrowing the manufacturing ones and fuelled the Composite PMI figure to the highest levels in a year.  Further, the latest comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly backed the calls for higher Fed rates while citing the inflation woes, which in turn propelled the bets on the Fed rate increase in June. Moving on, major attention will be given to the US debt ceiling talks and Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting for clear directions. If the US policymakers manage to overcome the default fears, as well as the Fed Minutes appear hawkish, the US Dollar may regain its charm and improve against its majors.

Key Data

FOMC Minutes