US:

New orders returned to growth in the US manufacturing sector in May, supporting a faster expansion in production midway through the second quarter of the year. Meanwhile, business confidence picked up and positive expectations regarding the future for the sector contributed to the hiring of additional staff, a renewed rise in purchasing activity and a build-up of stocks of finished goods.

Meanwhile, the rate of input cost inflation quickened to the fastest in just over a year, with firms raising their selling prices in response. The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index (PMI) rose to 51.3 in May, after having posted in line with the 50.0 no-change mark in April. The reading signaled a modest improvement in the health of the manufacturing sector, the fourth in the past five months.

May saw a renewed expansion in new orders, following a modest reduction in April. The rise in total new business was softer than that seen for new export orders, which increased at the fastest pace in two years. The increase in new orders, alongside better material availability, led manufacturers to expand production at a solid pace in May, with the rate of growth quickening from that seen in April.

The US' real Gross Domestic Product expanded at an annual rate of 1.3% in the first quarter, the US Bureau of Economic Analysis' (BEA) second estimate. This reading followed the 1.6% growth recorded in the first estimate. With the second estimate, downward revisions to consumer spending, private inventory investment, and federal government spending were partly offset by upward revisions to state and local government spending, nonresidential fixed investment, residential fixed investment, and exports, the BEA explained.

Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.7% on a yearly basis in April, the US Bureau of Economic Analysis reported. This reading matched March's increase. On a monthly basis, the PCE Price Index rose 0.3%. The Core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% on a yearly basis. The Personal Income grew 0.3% on a monthly basis in April, while Personal Spending increased by 0.2%.

The latest Chicago Purchasing Manager's Index (Chicago Business Barometer) fell to 35.4 in May from 37.9 in April. This is the sixth straight monthly decline and the lowest level for the index since May 2020. The latest reading keeps the index in contraction territory for a sixth consecutive month. The Chicago PMI assess the business conditions and the economic health of the manufacturing sector in the Chicago region. A value above 50.0 indicates expanding manufacturing activity, while a value below 50.0 indicate contracting manufacturing activity. The current level of 35.4 is below the level the index was at for the start of 6 of the 7 recessions that have occurred since its inception.

Eurozone:

Eurozone inflation surged in May. According to preliminary data from Eurostat, the harmonised index of consumer prices (HICP) in the Eurozone rose by 2.6% year-on-year in May, up from 2.4% in April. This marks the first increase in the annual inflation rate since December 2023. On a monthly basis, the HICP climbed by 0.2%, a slowdown from April’s 0.6%.

Energy inflation turned positive at 0.3% year-on-year for the first time since April 2023. Core inflation, which excludes food and energy, also rose in May, ending nine months of disinflation. The core inflation rate increased from 2.7% in April to 2.9% in May. Monthly core inflation edged up by 0.4%, decelerating from April’s 0.6%.

German business morale stagnated in May, a survey showed, suggesting the recovery of Germany's economy this year will be slow progress. The Ifo institute said its business climate index remained constant in May at 89.3.

UK:

The UK manufacturing sector returned to growth in May, as output expanded at the quickest pace in over two years on the back of improved intakes of new work. The outlook also brightened as manufacturers' positive sentiment rose to its highest level since early-2022, with 63% of companies expecting output to expand over the coming year. The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) rose to 51.2 in May, up from 49.1 in April, its highest reading since July 2022 but a tick below the earlier flash estimate of 51.3. The headline PMI has posted above the neutral 50.0 mark in two out of the past three months. May saw manufacturing production expand at the quickest rate since April 2022, with the upturn broad-based by both sector and company size.

The UK economy is approaching a soft landing, with a recovery in growth expected in 2024, strengthening in 2025, IMF said. Growth was 0.6 per cent on a quarter-to-quarter basis in the first quarter of 2024, marking a stronger-than-expected exit from the technical recession in the second half of 2023, which left full-year growth at 0.1 per cent, IMF said after an official staff visit to the UK. Real GDP growth is now forecast at 0.7 per cent in 2024 (a rise from 0.5 per cent in April), before gaining 1.5 per cent in 2025.

Japan:

The manufacturing sector in Japan bounced back up into expansion territory in May, the latest survey from Jibun Bank revealed with a manufacturing PMI score of 50.4. That's up from 49.6 in April and it moves above the boom-or-bust line of 50 that separates expansion from contraction. Output was broadly stable in May, with the respective sub-index close to the no-change mark and rising to a 12-month high. Some firms indicated that a lack of incoming new business and shortages of key components weighed on production.

Inflation in Tokyo accelerated in May, keeping the Bank of Japan largely on track to consider a rate hike in coming months even as the economy continues to show signs of weakness. Consumer prices excluding fresh food rose 1.9% in May in the capital, internal affairs ministry data showed.

Asia-Ex-Japan:

The manufacturing sector in China continued to expand in May, and at a faster pace, the latest survey from Caixin revealed with a manufacturing PMI score of 51.7. That's up from 51.4 in April, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction. Manufacturing production rose at the fastest pace since June 2022, with firms in the consumer segment reporting especially sharp output growth in May. This was underpinned by higher new work inflows, as stronger demand, both domestically and abroad, supported by heightened interests in new products led to the latest rise in new orders, according to panelists.

China's economy is likely to grow 5% this year, after a "strong" first quarter, the International Monetary Fund said, upgrading its earlier forecast of 4.6% expansion though it expects slower growth in the years ahead. The IMF said it had revised up both its 2024 and 2025 GDP targets by 0.4 percentage points but warned that growth in China would slow to 3.3% by 2029 due to an ageing population and slower expansion in productivity. It now expects China's economy to grow 5% in 2024 and to slow to 4.5% in 2025.

The manufacturing sector in Australia continued to contract, albeit at a slightly slower pace, the latest survey from Judo Bank revealed with a manufacturing PMI score of 49.7. That's up marginally from 49.6 in April, although it remains beneath the boom-or-bust line of 50 that separates expansion from contraction. Manufacturing production and new orders in Australia both declined at slower rates in May, the softest in nine and ten months respectively. According to survey respondents, higher prices and subdued market conditions negatively affected demand, albeit to a smaller degree compared with April.

Outlook:

The focus is likely to shift on the major central bankers in near term. Policymakers are expected to focus on the trend in inflationary expectations and the impact of current record high levels of interest rates on economic growth and labour markets. According to the World Bank, global commodity prices fell 3 percent in 2024Q1, driven by lower energy prices alongside relatively stable agriculture and metals prices. WTI Crude oil futures also dropped below $73 per barrel, the lowest in four months in first week of June 2024 as fears of increased global supply weighed.