(ATF) Financial markets will eye purchasing managers' index – PMI – business surveys this week in a host of countries which will provide the first major insights into global economic trends in May, after early signs of a pick-up were seen in April.
“If lockdowns are lifted further in coming months, as planned, a return to growth looks possible for many economies as we head into the third quarter,” Chris Williamson, chief business economist at IHS Markit, said. ”With markets showing signs of reduced pessimism on the economic outlook, analysts will therefore be hoping that the final global PMIs will confirm an easing from April’s unprecedented rate of economic contraction.”
On Sunday China unveiled official manufacturing PMI, which eased to 50.6 in May from 50.8 in the previous month, although it is still in expansionary territory. During the week, it will unveil Caixin PMI data, which focuses more on smaller export-driven firms.
Nomura's chief China economist Ting Lu said the official non-manufacturing PMI improved to 53.6 in May from 53.2 in April, pointing to a continued yet slow recovery.
“We expect the PBoC to inject more liquidity in coming weeks via RRR cuts or other facilities,” he said.
Analysts say that with leading indicators like total social financing – TSF – accelerating this year, manufacturing PMI is likely to stay in expansionary territory.
“In the near term, we expect monetary policy to continue the 'volume' of credit expansion, in order to stabilise growth and help fiscal expansion. In this regard, China’s domestic demand will likely continue to rebound,” Yue Yuan and Eva Yi, economists at China International Capital Corporation, said.
The Reserve Bank of Australia will announce its rate decision on Tuesday when it is widely expected to keep interest rates unchanged. “Governor Lowe has ruled out negative rates and there should be some evolution in the language around the domestic outlook as the economy is reopening more quickly than anticipated,” Phear Sam and Tony Morriss of BofA Securities said in a report.
US jobless rate
Later in the week, the US non-farm payroll will hold centre stage. A Bloomberg survey expected the jobless rate to rise to 19.6%, the highest since the Great Depression in the 1930s, following April’s 14.7%. Payrolls probably declined by almost 8 million after a whopping 20.5 million slump in April, the survey said.
According to a Reuters survey, the unemployment rate rose to 19.8% in May, and non-farm payrolls are expected to drop by 7.4 million.
“While not quite as dramatic as April’s record-setting performance, the May employment report should still show severe ongoing misery in the US labor market,” Wells Fargo senior economist Sam Bullard said.
“Reflecting measures taken by many states to ease stay-at-home restrictions, we look for both the ISM manufacturing and non-manufacturing indices to pick up modestly in May,” he said about the other key indicators to watch.
Bond funds benefited and emerging markets equity funds saw outflows on mounting US-China tensions in the week to May 27, according to funds tracker EPFR.
There was a net $20.2 billion flow into EPFR-tracked Bond Funds while Alternative Funds absorbed $330 million, Equity Funds $3.7 billion and Money Market Funds $8.4 billion in that week.
“Emerging Markets (EM) Bond Funds recorded only their third inflow in the past 13 weeks on the back of solid flows to funds with hard currency mandates. EM high-yield and investment-grade corporate bond funds recorded their biggest inflows in eight and 15 weeks respectively while flows to most EM country fund groups were subdued,” EPFR said in a report while adding the average GEM Bond Fund’s exposure to Emerging Asia and the Middle East is at four-year and record highs.
“As the shape of the economic recovery seems uncertain at this point, we find that there is a decent dispersion in the shape of the recovery of fund flows,” BofA Securities analysts said in a report.
“While high-grade funds have suffered less in this sell-off compared to the high-yield funds, their recovery seems to be a slower one compared to the high-yield market. EM debt is the pocket that is lagging the rest of the fixed income world amid FX (foreign exchange) pressures. The recovery is a slow, but is a steady one, as the central banks' put is in full speed.”
China Equity Funds extended their current run of outflows to six consecutive weeks but solid commitments to US, Japan and Global Equity Funds enabled Developed Markets Equity Funds to record their first collective inflow in over a month, EPFR said.
Japan Equity Funds chalked up their 11th inflow in the past 13 weeks, US Equity Funds snapped a five-week outflow streak as retail flows turned positive for the first time since late March and Global Equity Funds, recorded retail inflows for the eighth consecutive week and posted their biggest overall inflow since mid-April.