May 25, 2022

Daily Report 25/05/2022

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The UK PMI manufacturing index dipped to a 16-month low of 54.6 for May from 55.8 the previous month and slightly below expectations of 54.6. Most attention focussed on the services sector with a sharp retreat to a 15-month low of 51.8 from 58.9 previously and well below consensus forecasts of 56.9. There was a slowdown in orders growth with the sharpest slowdown with export sales under pressure. Cost pressures remained strong with input prices increasing at the fastest rate on record. The rate of output prices slowed slightly amid weaker demand while overall business expectations dipped to 2-year lows. Sterling dipped sharply following the data with increased fears over a sharp deterioration in economic conditions. The CBI retail sales survey provided a slight element of relief with a reading of -1 for May from -35 previously, although retailers expect a notable deterioration over the next three months.

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The Euro advanced further in early Europe on Tuesday with a peak against the dollar as hawkish ECB rhetoric continued to provide support. German PMI data was mixed with a weaker than expected reading for services at 56.3 from 57.6, but there was a slight beat for manufacturing at 54.6 from 54.3 in April. The Euro-zone PMI manufacturing index retreated to an 18-month low of 54.4 from 55.5 and slightly below expectations of 54.9 while the services-sector index was also below expectations at a 2-month low of 56.3 from 57.7. Cost pressures eased slightly, although output prices increased at the second-fastest rate on record. ECB President Lagarde stated that markets should not translate words into percentage point moves, but also commented that the bank is attentive to the level of the Euro. Council member Holzmann stated that a 50 basis-point hike would be appropriate in July, but fellow member Villeroy stated that this was not part of the consensus.

Key Data

9.00 Christine Lagarde Speech

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The US PMI manufacturing index retreated to a 3-month low of 57.5 for May from 59.2 and in line with expectations. There was, however, a steeper than expected decline in the services-sector index to a 4-month low of 53.5 from 55.6 and below consensus forecasts of 55.2. There was a net slowdown in new orders growth. Input prices increased at the fastest rate on record while prices charged also increased strongly with output prices increasing at close to the highest rate on record, although overall business optimism held firm. The dollar was subjected to renewed selling following the PMI data amid fresh reservations over the US outlook.

Key Data

13.30 Durable Goods Orders (Apr) Exp. 0.6% 1.1%

13.30 Nondefence Capital Goods Orders ex Aircraft (Apr) Exp. 0.5% Prev. 1.3%

19.00 FOMC Minutes