Source: Huaxia Times
The news that affected the market most last week was that the May PMI data in the United States were better than expected.Scratch5The manufacturing PMI reached a two-month high and broke the 50 mark, the service PMI reached a 12-month high, and the comprehensive PMI reached a 25-month high.
Among them, the initial value of Markit manufacturing PMI in the United States in May is 50.Scratch5.9, a two-month high, with an expected value of 49.9 and 50 by April. The initial PMI of the Markit service sector in the United States hit a 12-month high of 54.8 in May and is expected to be 51.2 and 51.3 before April. The most closely watched of these data structures is the inflation data, which reflects even less optimistic information: factory input prices have risen at the fastest pace since November 2022, and service providers have also paid and received higher prices. In the comprehensive PMI data, the index to measure the price of input is also rising.
The market commented that May had its fastest expansion in more than two years. The data put the US economy back on track, and GDP grew steadily again in the second quarter. Not only has production increased as orders have risen, but business confidence has also improved, suggesting that interest rate cuts are less likely this year.
What is even more worrying about this data is that the main driver of inflation now comes from manufacturing rather than services, because the most stubborn part of US inflation is not manufacturing, but services, which began to weaken as early as last year. But this data may mean that manufacturing is recovering again and prices are rising again.
After the release of this data, it dealt a blow to market expectations that the Federal Reserve would cut interest rates by the end of the year. On the same day, the US Dow Jones Index fell more than 670 points, affecting the situation of stock and debt exchange rate killing in the Asia-Pacific market.
The reason why the market reacted so strongly was that expectations were too low, because April's inflation figures were lower than expected, especially core inflation fell, and people were full of confidence in cutting interest rates this year.
Data released by the US Bureau of Labor Statistics on May 15th showed that US CPI rose 3.4 per cent in April from a year earlier, unchanged from expectations and down slightly from 3.5 per cent, while CPI rose 0.3 per cent month-on-month in April, below expectations and 0.4 per cent.
Excluding food and energy costs, core CPI in the US rose 3.6 per cent year-on-year in April, unchanged from expectations of 3.6 per cent, lower than the previous figure of 3.8 per cent and the slowest increase since April 2021, while core CPI growth slowed to 0.3 per cent month-on-month from 0.4 per cent in March, the first decline in six months and unchanged expectations of 0.3 per cent.
Among them, rising energy prices and housing costs are still the biggest resistance to downward inflation, but the accelerated decline in new and used car prices has contributed to a slowdown in inflation. Housing costs are the largest category in the service sector, rising 0.4 per cent for the third month in a row, while transport services continued to rise 0.9 per cent in April, following a 1.5 per cent rise the previous month. The index of new cars fell 0.4% from the previous month, and the index of used cars and trucks fell 1.4% from the previous month, which was further enlarged from the previous month.
It is worth noting that although housing costs rose month-on-month, they continued to slow down compared with the same period last year. Moreover, the contribution of service costs to rising inflation is diminishing. Commodity prices are falling at their fastest pace since April 2004, while service prices are growing at around 5.3 per cent year-on-year.
The April inflation data corresponded with the performance of PMI. In April, the US manufacturing PMI fell below the boom-bust line, with an initial value of 49.9, the lowest level since December 2023. The service sector, which contributed more to the economy, also missed expectations, with an initial value of 50.9. although it was still above the boom-bust line, it was significantly lower than the expected value of 52, a five-month low. Composite PMI is still in the expansion range, falling 1.2 points a month, the biggest decline since August last year. So based on the performance of PMI in May, there is a good chance that the inflation data for May will also rise.
In fact, what worries the market most is the core CPI data. in the past four months of this year, most of the core CPI in the United States exceeded expectations. In January, the core CPI increased by 3.9% year on year, slightly higher than the market expectation of 3.7%, and the previous value was 3.9%. In February, the core CPI rose 3.8% year on year, higher than the expected 3.7%, and further down from the previous value of 3.9%. Core CPI rose 3.6 per cent in March from a year earlier, unchanged from expectations of 3.6 per cent, lower than the previous figure of 3.8 per cent and the lowest increase since April 2021.
The strong performance of US core CPI so far this year is the most important reason for the reversal of interest rate cut expectations this year, but the reason why the Fed is stubborn about US inflation is still not very clear, which is first reflected in their judgment of the current situation of neutral interest rates.
On May 24th Federal Reserve Governor John Waller, the frontrunner for the next Fed chairman, said he still thought neutral interest rates in the United States were relatively low. 'in the short term, I don't see any reason for him to change his view of neutral interest rates, 'Mr. Waller said.
Neutral interest rate is a theoretical concept that describes policy settings that neither stimulate growth nor restrain demand. It can not be observed in real time, and there is great uncertainty in the estimation range. The latest estimates released by fed officials in march show that their range of estimates for neutral interest rates is 2.4% Mel 3.8%.
The reason why this data is important is that it can determine whether the current official interest rate is restrictive to the economy, which may raise the target interest rate. For example, the Fed's target interest rate is still 2%. Is this too low?
There is an old Chinese saying: "the Great Wall was not built in a day." So is inflation in the United States, and it is unlikely to come down any time soon. Everyone is a little anxious.