MNI Global Morning Briefing: EZ Inflation Seen Higher

Tuesday sees a busy calendar of data releases and the highlights include final manufacturing PMIs in Spain (0815BST), Italy (0845BST), France (0850BST), Germany (0855BST), the EZ (0900BST) and the UK (0930BST). Moreover, the release of EZ flash inflation will be closely watched at 1000BST. The main data event to look out for in the US is the release of the ISM manufacturing PMI at 1500BST.

Europe's manufacturing PMIs signal expansion

The final manufacturing PMIs are expected to be in line with the flash results showing a two-month low of 62.8 for the eurozone and 64.0 for Germany, while France posted a two-month high of 59.2. Nevertheless, all three indicators registered well above the 50-mark, showing that the manufacturing sector is still expanding. Additionally, the EZ flash report showed a record increase of business optimism for the months ahead as well as a 15-year high of new orders.
The Spanish and Italian manufacturing PMIs are expected to rise further in May to 59.3 and 62.1, respectively. The Italian index rose to the highest level on record in April, while the Spanish index registered the strongest reading since 1997.

The UK's manufacturing PMI rose to a record high of 66.1 in May, according to the flash result. While output, new orders and employment showed solid increases in May, another lengthening of supplier delivery times pushed up the index further. However, the UK's report noted a rebound of export sales, driven by demand from US and China and easing Brexit related difficulties with EU clients.

Supply chain disruptions continued to be a problem in all four countries. Delivery times lengthened again according to the flash results, which often led to an increase in the stocks of purchases but also to higher prices for transport and commodities.

EZ flash inflation seen higher

Annual inflation in the eurozone rose to a two-year high of 1.6% in April and markets expect the indicator to increase further in May to 1.9%, which would mark the highest level since November 2018 (1.9%). Energy inflation was the main driver of April's increase and it is likely to show the largest upward contribution again in May.

Already available state-level data is in line with market forecasts. Flash French inflation rose to 1.8%, while the Spanish HICP registered at 2.4%, slightly above expectations. The Italian consumer price index ticked up to 1.3%, the German inflation jumped to 2.4%, which was also marginally above market forecasts, which at least offers the chance for an upside surprise from the headline data.

Source: Eurostat

ISM manufacturing PMI projected to edged higher

The ISM manufacturing PMI ticked down to 60.7 in April, after rising to 64.7 in the previous month. April's downtick was broad-based with every major category posting a monthly decline. Production recorded the largest dip, followed by Employment and Inventories. Meanwhile, Prices rose 4 points to the highest level since 2008. In May, markets expect the headline index to edged higher to 61.0.

Similar survey evidence is in line with market expectations. The Chicago Business Barometer rose to the highest level since 1973, while the IHS manufacturing PMI jumped to series high.

The events to follow on Tuesday include speeches by Fed's Randal Quarles, BOE's Andrew Bailey and Fed's Lael Brainard.