MNI US OPEN: Big Downside UK PMI Surprise

MNI: GERMANY FLASH MAY SERVICES PMI 56.3 (FCST 57.1); APR 57.6

GERMANY PMI: Details more concerning

Manufacturing PMI rose a tenth (7 tenths above consensus), services missed expectations by 8 tenths and composite rose 3 tenths (beat consensus by 7 tenths). Unlike the French data, the German data looks a bit more concerning, and price pressures remained strong, but didn't set a new record this month.

• "there were signs of demand starting to come under pressure from market uncertainty, rising prices and supply issues, with manufacturers reporting the steepest drop in new orders for almost two years... overall inflows of new business continued to rise in May, growth slowed to the weakest in the current five month sequence and was confined to the service sector."
• "Manufacturers faced a particularly steep decline in new export orders, which contrasted with a slight uptick in new business received from abroad across the service sector."
• "The overall rates of increase in both input costs and output prices eased slightly from April’s record highs, although they were still faster than at any other time in the series history."
• "Business confidence towards the year-ahead outlook for activity remained relatively subdued in May. Expectations ticked up slightly from April, owing to slightly stronger optimism among services firms, though they were still the second-lowest in the past two years as businesses continued to voice concerns over rising prices, supply bottlenecks and heightened uncertainty. This was especially the case in manufacturing, where expectations turned increasingly pessimistic."

MNI: FRANCE FLASH MAY SERVICES PMI 58.4 (FCST 58.5); APR 58.9

FRANCE PMI: Employment and inflation high

Composite a couple of tenths higher than consensus, services a tenth lower and manufacturing 7 tenths lower. Some of the details look fairly positive, however, albeit with prices rising at a record pace. Highlights from the press release:

• "The rise in overall activity levels was almost entirely driven by services firms as goods production increased at a sluggish pace"
• "French employment levels rose at the fastest pace since March 2001, while incidences of supplier delays across the manufacturing sector were at their least widespread for almost a year-and-a-half"
• "Price pressures once again intensified in May, with rates of input cost and output price inflation accelerating to fresh record highs."
• "New business intakes rose at a strong pace, although the expansion slowed from the ten month high seen in April. As was the case with output, the increase in new orders at services companies was noticeably faster than among goods producers during May."

MNI: EZ MAY FLASH MANUF PMI 54.4 (54.7 EST); APR 55.5

MNI: UK FLASH MAY SERVICES PMI 51.8 (FCST 57.0); APR 58.9

UK PMI: Big fall in composite and services

Big falls in the service and composite PMIs in the UK, with the details not looking positive either. Highlights from the press release:

• For the composite PMI "the month-on-month loss of momentum in May (-6.4 index points) was the fourth-largest on record and exceeded anything seen prior to the pandemic."
• "Latest data indicated the fastest rise in operating expenses since this index began in January 1998, led by a rapid acceleration in input cost inflation across the service economy"
• "Service providers signalled the greatest loss of momentum in May (index at 51.8, down from 58.9 in April), with survey respondents often noting that economic and geopolitical uncertainty had contributed to a slowdown in client demand. However, many businesses in the travel, leisure and events sector still commented on strong growth conditions due to a rapid recovery from pandemic restrictions."
• "Manufacturing output (index at 51.8, down from 54.3 in April) mirrored the marginal growth trend seen in the service sector, although this represented a more modest loss of momentum relative to the prior month. "
• "business expectations eased to the lowest for two years in May amid worries about the global economic outlook and downbeat projections for consumer spending. The latest drop in business optimism was most acute in the service sector, with the month-on-month loss of momentum the greatest since March 2020."

MNI: UK APR PSNCR GBP2.37 BN

MNI BRIEF: UK Borrowing Slows In April On Higher Tax Take

UK government borrowing slowed in line with financial market expectations in April, but debt interest costs continued to accelerate in April, the latest data from the Office for National Statistics show.

Net borrowing slowed to GBP18.6 billion (GBP18.7 bn forecast) in the month, GBP5.6 billion below the level seen in April 2021, although still a hefty GBP7.9 billion above the pre-pandemic April 2019 numbers. April's data was boosted by a higher tax take, including revenues from the increase in National Insurance payments and other modest hikes, but weighed somewhat by the fuel cost Council Tax subsidy.

The ONS saying payments on outstanding debt instruments stood at GBP 4.4 billion, with GBP3.9 billion due to the Jan-Feb RPI uplift over and above accrued coupon payments. Against debt payments, there was a dividend payment from the BOE APF Fund of GBP3.2 billion.

UK Government debt-to-GDP %

FIXED INCOME: Gilts move notably higher post-PMI data; German curve holds after Villeroy

• Gilts are leading the way after a significant repricing of BOE hiking expectations following the fourth largest ever month-to-month fall in the UK composite PMI (and exceeding anything prior to the pandemic). The picture for the labour market is also looking gloomy with companies not fully replacing those who have voluntarily left.
• The gilt curve has seen a notable bull steepening and has dragged 10-year UST and Bund yields higher.
• After hitting their highest level since May 5 ahead of the data overnight, 2-year gilt yields are almost 11bp lower on the day now.
• There was no lasting reaction in bond markets to the Eurozone PMI releases.
• Also this morning we have heard from ECB's Villeroy who said that 50bp hikes are not the consensus of the ECB but that the repo rate would be back at the neutral rate next year (which he described as between 1-2%). This has helped anchor Schatz and the rest of the German curve somewhat, although yields are still lower on the day after the UK PMI print.
• Looking ahead we are due to receive the US flash PMI data, Richmond Fed and new home sales as well as a speech from Fed's Powell.
• TY1 futures are up 0-13 today at 119-31+ with 10y UST yields down -4.7bp at 2.806% and 2y yields down -4.8bp at 2.575%.
• Bund futures are up 0.20 today at 153.31 with 10y Bund yields down -2.7bp at 0.987% and Schatz yields down -1.2bp at 0.392%.
• Gilt futures are up 0.78 today at 118.77 with 10y yields down -7.8bp at 1.891% and 2y yields down -10.6bp at 1.449%.

FOREX: A busy morning session

• A busy morning session for FX, starting with a EUR rally, after ECB Lagarde in an Bloomberg interview in Davos, noted that the ECB were attentive to the EUR level.
• The EUR strength initially kept the lid on the Dollar, but both currencies reversed, after ECB Villeroy said that a 50bps hike was not the consensus at the ECB.
• The second main story of the session was the big UK Services and Composite PMI miss, which saw the Pound plummeting, and in turn lifted Govies and rate markets.
• As per S&P: "Service providers signaled the greatest loss of momentum in May (index at 51.8, down from 58.9 in April), with survey respondents often noting that economic and geopolitical uncertainty had contributed to a slowdown in client demand. However, many businesses in the travel, leisure and events sector still commented on strong growth conditions due to a rapid recovery from pandemic restrictions."
• Even employment growth "was the least marked for 13 months. Some businesses noted that a desire to reduce costs had led to the non-replacement of voluntary leavers."
• Cable crashed through 1.2500, over 100 pips range for the pair.
• The Yen is the best performer against the Pound in G10, up 1.31%, and GBP trades in the red across the majors.
• Looking ahead, US PMIs are the notable data. Speakers still scheduled, ECB Villeroy, Riksbank Breman, and Fed Powell (pre recorded Welcoming remarks at an Economic Summit).

EQUITIES: Tech Stocks Sink On Social Media Woes

• Asian markets closed weaker: Japan's NIKKEI closed down 253.38 pts or -0.94% at 26748.14 and the TOPIX ended 16.31 pts lower or -0.86% at 1878.26. China's SHANGHAI closed down 75.93 pts or -2.41% at 3070.927 and the HANG SENG ended 357.96 pts lower or -1.75% at 20112.1.
• European futures are lower, with the German Dax down 142.92 pts or -1.01% at 14032.77, FTSE 100 down 40.45 pts or -0.54% at 7472.44, CAC 40 down 77.34 pts or -1.22% at 6281.56 and Euro Stoxx 50 down 46.55 pts or -1.26% at 3661.46.
• U.S. futures are down again, led by tech / social media stocks: Dow Jones mini down 280 pts or -0.88% at 31559, S&P 500 mini down 51 pts or -1.28% at 3920.75, NASDAQ mini down 226.25 pts or -1.88% at 11810.25.

COMMODITIES: Mixed Trade Early, Precious Metals Edge Higher

• WTI Crude down $0.13 or -0.12% at $110.15
• Natural Gas up $0.09 or +1.02% at $8.833
• Gold spot up $4.9 or +0.26% at $1858.53
• Copper down $3.8 or -0.87% at $430.75
• Silver up $0.08 or +0.38% at $21.8778
• Platinum up $0.96 or +0.1% at $962.16