Risk-On Euphoria From China Manufacturing Fizzles After Latest Round Of Disappointing European Data

Tyler Durden's picture

The key news overnight were global manufacturing PMIs which can be summarized as follows: Japan contraction; China contraction, but less than expected (as reported before); and most recently, Europe which expanded but dropped and missed, at 52.5, down from 53.4 and below the consensus estimate of 53.2. The weakness was fully driven by France which has moved back into a contraction phase in both manufacturing and services, which were 49.3 and 49.2, down from 51.2 and 50.4, respectively (although with the recent surge in train station remodelling, the mfg aspect may soon be boosted). The market soaked up the Chinese numbers with fervor, sending the algo-controlled USDJPY into a buying frenzy which in turn pushed up US equity futures, only to see a gradual fade of the Chinese euphoria when the European data hit.

And speaking of the China PMI, Goldman was quick to pour cold water on the party:

We would treat the data cautiously as the gauge of the latest growth momentum because the HSBC PMI tends to lag mom IP. Over the past year the HSBC PMI reading appears to lag mom IP by one month. Mom IP started to accelerate in July 2013, peaked in September, and fell continuously until rebounding in March. HSBC PMI started the rebound in August, peaked in October, and fell continuously until today’s announcement. Therefore today’s data may reflect a slightly longer lag than usual instead a major rebound in the latest growth momentum. A rebound in May might have happened but we would like to see the official PMI to be released on 1st June and final reading of the HSBC PMI for further confirmation. The key in interpreting the final reading is to look at the change from the flash to final reading especially in terms of the production and new order indexes though this change is based on a relatively small sample so prone to random shocks too.

As a result despite the so-called recovery, the Shanghai Composite actually closed down 0.2%. Which perhaps is why after coming within inches of all time highs again overnight, US equity futures overnight are in danger of turning red once more.

In other news, there is another relatively quiet session ahead for US markets, with Initial claims and Existing Home Sales the main economic releases on the US calendar.


Bulletin Headline Summary from RanSquawk and Bloombeerg

  • Treasuries decline, led by 7Y notes, amid PMI releases in China and Europe; trading might slow as long holiday weekend looms in U.K. and Europe and light data calendar.
  • A preliminary China PMI from HSBC and Markit rose to 49.7 in May, exceeding the 48.3 Bloomberg median estimate, with a rebound in both output and orders
  • Markit Economics said its PMI of euro region services activity rose to the highest in almost three years; forecasts economic growth may accelerate to 0.5% this quarter, fastest since early 2011, largely thanks to Germany
  • Galvanized by the debt crisis and the EU’s 10.5% unemployment rate, protest parties in the U.K., Greece, France, Italy, the Netherlands, Austria and elsewhere are set to surge in this week’s European Parliament elections
  • U.K. consumer spending rose 0.8% in 1Q, 10th straight increase, adding 0.5% to GDP that rose 0.8%
  • A Russian diplomat will visit the Foreign Office in London after Prince Charles was reported to have compared Vladimir Putin to Adolf Hitler
  • Sovereign yields mixed. Nikkei +2.1%, Shanghai -0.2%. European equity markets mixed, U.S. stock futures gain. WTI crude little changed, copper and gold higher

US Event Calendar

  • 8:30am: Chicago Fed National Activity Index, April est. 0.0 (prior 0.2)
  • 8:30am: Initial Jobless Claims, May 17, est. 310k (prior 297k)
  • Continuing Claims, May 10, est. 2.675m (prior 2.667m)
  • 9:45am: Bloomberg Economic Expectations, May (prior -4)
  • Bloomberg Consumer Comfort, May 18
  • 9:45am: Markit US Manufacturing PMI, May preliminary, est. 55.5 (prior 55.4)
  • 10:00am: Existing Home Sales, April, est. 4.69m (prior 4.59m)
  • Existing Home Sales m/m, April, est. 2.2% (prior -0.2%)
  • 10:00am: Index of Leading Economic Indicators, April, est. 0.4% (prior 0.8%)
  • 11:00am: Kansas City Fed Manufacturing Index, May, est. 7 (prior 7)
  • 4:00pm: Fed’s Williams speaks in San Francisco Supply
  • 11:00am POMO: Fed to purchase $850m-$1.1b notes in 2036-2044 sector

EU & UK Headlines

The risk on sentiment stemming from the release of the much better than expected Chinese HSBC Manufacturing PMI (49.7 vs. Exp. 48.3 - highest reading in 5 months) was short-lived, as market participants digested the release of somewhat mixed EU based PMIs. The reversal in sentiment was also attributed to analysts downplaying the significance of the rebound in Chinese PMI, with analysts at Goldman Sachs stating that the data may reflect a slightly longer lag than usual instead of a major rebound in the latest growth momentum.

Prelim Barclays month end extensions show Pan-Euro Agg at +0.04y (Prev. +0.10y)
Prelim Barclays month end extensions show Sterling-Agg at +0.06y (Prev. +0.02y)
Prelim Barclays month end extensions show US Treasury at +0.13y (Prev. +0.08y)


Stocks in Europe (Eurostoxx 50, -0.40%) gradually closed the opening gap higher, as the positive sentiment ebbed amid somewhat less than impressive macroeconomic data. Despite the reversal in sentiment, basis materials stocks remained among the best performing in Europe, while health care and financials underperformed. In terms of earnings scheduled today, focus will be on GAP and Hewlett-Packard.


The release of an inline with exp. UK GDP report resulted in an aggressive short-squeeze in EUR/GBP and recovered off multi-month lows printed yesterday, with EUR/USD outperforming GBP/USD in the process. Despite the reversal in sentiment, USD/JPY remained better bid, with AUD/USD also trading higher amid higher gold and silver prices, which were supported by the recent relaxation of gold imports in India.


Precious metals continue outperform base counterparts, as analysts pour cold water over the rebound by the Chinese PMI and digest somewhat mixed EU PMIs, while recently eased gold imports in India also continuing to prove supportive for gold and silver. Elsewhere, Brent and WTI crude futures also failed to benefit from the release of somewhat mixed EU and questionable Chinese PMI, but were supported by the ongoing tensions in Ukraine, in turn resulting in prices trading little changed.

* * *

As customary, we conclude with the overnight recap by DB's Jim Reid:

We’ve had a very light macro calendar so far this week but the drought breaks today with the latest round of global PMIs, together with US April home sales which will provide an update on the US spring home selling season. Speaking of today’s PMIs, China has kicked things off overnight with a consensus-beating HSBC manufacturing PMI that printed at a five-month high of 49.7, or 1.4 points above Bloomberg's median estimate of 48.3. Though still below the 50 threshold, it does provide some relief against the recent worries surrounding China’s economy and cooling property market. A couple of things standout in the detail, including the new exports orders component which rose to 52.7 (vs 48.9 previous). This is the highest level since November 2011. The output component rose to 50.3 (vs 47.9 previous) which is the highest since January 2014.

The European PMIs come later this morning and the market is expecting the recent months’ momentum to stall. Bloomberg consensus is predicting the composite PMI to fall to 53.9 (vs 54.0 in April) following two months of increases. The Euroarea manufacturing PMI is expected to fall to 53.2 (vs 53.4 in April) and the Services PMI is similarly expected to edge down (53.0 vs 53.1 in April). Whatever the outcome of the PMIs today, we get the feeling that it will take a significant upside data surprise leading up to the next Governing Council meeting on 5th June for the ECB to refrain from policy easing. The reaction in Asia has been fairly positive with regional bourses seeing a broadbased lift from the Chinese PMI data. Gains are being led by the Nikkei (+2.0%) and the Hang Seng China Enterprises Index (+1.5%) with outperformers being resources, technology and retail stocks. Chinese iron ore futures are up 1.3%, getting a much needed boost from their lowest levels in many months. Stocks in miners Rio Tinto and BHP are up 2.7% and 1.6% respectively. AUDUSD and USDJPY are both up 0.2% overnight and US treasury yields are 2bp higher in the Asian time zone. Staying in China but on a separate issue, a number of Chinese utility/gas stocks are seeing strong gains after yesterday’s announcement that Russia and China have concluded negotiations whereby the former will supply gas to the latter for 30 years starting in 2018. Companies such as Beijing Enterprises (+7%), ENN Energy (+3.5%) and China Gas (+6.3%) are the main beneficiaries of the news.

Coming back to yesterday, the Fed minutes saw markets respond with a little volatility, but that lasted just a short while before equities resumed their upward march while the VIX started its downward slide again. The S&P500 closed with a gain of +0.81%, bringing it back into positive territory for the month of May (+0.22% month-to-date). May is seasonally one of the weakest months of the year (average performance of -1.69% in the last five years of bullish markets) so some might be comforted by this. In terms of the minutes themselves, there were generally no surprises and the minutes were judged to be very much in line with the April policy statement. DB’s US economists noted that the Fed staff delivered a presentation to meeting participants on issues regarding the eventual normalization of monetary policy. While there was a discussion of the range of options available to policymakers as they move toward a less accommodative policy stance, the minutes specifically noted: “No decisions regarding policy normalization were taken”. The minutes also showed that FOMC participants expected gradual gains in the labour market, though there was some discussion from participants that they were seeing tight labour condition in their respective districts with some businesses reporting a shortage of workers. Most FOMC participants expected inflation to rise to 2% in a few years after “transitory factors” fade,  while some members expected a slower rise than that. In discussing financial stability, participants generally did not see evidence of significant dislocations, although the minutes did list a few specific concerns—namely, the leveraged loan market, declining credit spreads on speculative-grade corporate bonds and low implied volatility in various financial markets. Away from the Fed minutes, there was very little reaction from the other Fed speakers including Yellen who did not comment on monetary policy in her NYU commencement speech. US treasuries added 2bp on the day to around 2.53% but traded firmer after the FOMC minutes.

EURUSD is down 0.1% overnight and is currently trading around 1.367, poised for its 10th down day of the last twelve. According to Germany’s Suddeutsche, the ECB’s Weidmann said that no decision has been taken on ECB action in June and a rate cut is not a done deal (although Weidmann did say that negative deposit rates could revive lending). This helped stem some of EURUSD’s losses yesterday. Weidmann also argued against exchange rate targeting, saying that interest rate changes were the core of the ECB’s policy instruments. Elsewhere, Gilts weakened moderately after the BoE minutes showed that “for some members, the monetary policy decision was becoming more balanced”. Sterling hit a five-and-a-half year high on a trade-weighted basis after the BoE minutes. In the EM space, some noted that Russian assets have now recovered back to near their pre-Ukraine crisis levels. Indeed the MICEX equity index is only about 2-3% from the pre-crisis levels and Russian 10yr sovereign yields are back at their levels seen in late February when the first clashes between the Ukraine government and pro-Russian separatists were reported in Crimea. The strength of the emerging market complex has certainly helped Russia’s cause, but one can’t help wondering if the renewed global search for yield of late has also been a major contributing factor. The rally in treasuries has been good for EM.

Looking at the calendar over the next 24 hours, the European PMIs will be watched closely in light of Q1’s weak GDP data and the ECB meeting in 2 weeks. The start of European parliamentary elections are also a key event today, beginning with polls in the UK and Netherlands, before the rest of the Bloc votes over the weekend. In the US, we have existing home sales and jobless claims. There will be central bank policy meetings in South Africa and Turkey (DB’s EM strategists expect both to keep policy unchanged). Brazil will also give an update on unemployment. In the UK, the focus is on Q1 GDP (second estimate).

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q99x2's picture

I'll go back to work if you give me a printing press and allow me to print my own money.

GetZeeGold's picture



Looks like the US is going to have to send some people to Europe to show them how to do communism correctly.

RevRex's picture

Bush's fault, since it happened during the ObowelMovement.......

GetZeeGold's picture



A little known fact is that Bush shows up every couple weeks at the Whitehouse.


"You got my money boy?"


We've tried to make him stop using the word boy.....but he won't.....cause he's a racist.

Ghordius's picture

The start of European parliamentary elections are also a key event today, beginning with polls in the UK and Netherlands...

I note that the Daily Telegraph has shifted it's opinion on Nigel Farage:









Caracalla's picture

The Tories are scared sh*tless of the UKIP, therefore, there wholly owned subsidiary, the Telegraph, pumps these articles day and night.

Devotional's picture

Ghordius believes in unelected and unaccountable commissions spewing directives every single day. I am in Europe and read this FACT: Merkel has already negotiated the new European Commission which will NOT reflect the new EU parliament outline as per the "electorate". Let that sink in, the EU "elections" are mute/void. Meaningless votes as the EU commission has ALREADY been selected.


Fascism in Europe.

Ghordius's picture

so? the EU commission is appointed by the EU Council, as per treaties, of which the sovereigns are the masters

you seem to support the EU federalists with your request of having the EU parliament supreme. I oppose them

meanwhile, the commission will be appointed after the elections, and taking them in consideration, and will have to be approved or rejected by the EU Parliament, as per co-decision principle

I support a confederative system with full sovereignty of the club members, as the continental conservative consensus, btw

your "unelected" and "unaccountable" are just propagandistic items

fonzannoon's picture

You guys don't have a Hillary and a Jeb Bush. That's your real problem.

Ghordius's picture

true, so true. we have only the choice among over one hundred parties grouped in seven parliamentary "families", instead of Big Blue or Big Red. damn

gatorengineer's picture

Europe has the choice of Most left, more left, left, and a tiny group of UKIP type parties, and skinheads.  Not that different from here, liberal dems, dems, rhinos, and a tiny group of libertarians.  the Tea Party has been so hijacked as to be unrecognizable.....

Ghordius's picture

wrong. we have the full spectrum. from fascist to liberal to conservative to nationalist to socialist to radicals to everything. this "europe is all leftists" is utter bullshit

Dr. Engali's picture

As a token of solidarity with our European friends I suggest we offer them ours.

Ghordius's picture

"Let that sink in, the EU "elections" are mute/void. Meaningless votes..."

wrong on so many levels that I can only touch a few

- the EU Parliament will have to approve or reject anything the commission drafts. and the EU Council too, btw

- there are no lost or meaningless votes for the EU Parliament. because it's elected according to a proportional voting system, the same one that allows UKIP, the one UK protest party that was not able to gain even one MP seat in the Westminster Parliament

Non Passaran's picture

And the EU parliamentarians will approve whoever they're bribed into approving.

ALL votes in the parliament are wasted.
The so called left block has voted the same as the right in 80% or so cases.
Kleptocracy of the worst kind.
Check the voting stats.

Ghordius's picture

well, this is a different stance than Devotional's. yours implies that people that have not yet been elected are already, or will soon be corrupted

his stance is about giving more power to the EU Parliament, and so less to the governments of the member countries

trader1's picture

it's kind of a beautiful thing the system in europe.


strong sovereigns balanced by a strong, centralized EU governance model integrating minority, majority, mainstream, big, small, and fringe voices into a cohesive whole.  


as Team America completes its mission, the course for sustaining our evolution with mother earth is being set.


watch ;-)

orangegeek's picture

funny how these PMI's all hover barely above 50


they know it's bullshit.  we know it's bullshit.


wtf is the Baltic Dry Index sitting at 988, off from 2300 in January and off from 11600 (yes this number is correct) in 2008


shipping costs are way down because no one is shipping


PMI's should be in the 40's or 30's.

Terminus C's picture

Optics over substance.  The new normal.

Sudden Debt's picture

Governments keep it above 50 by constantyl increasing their spending and hiring more government workers all over the place.

Once 99% of the people work for the government, it will get difficult...


jtz5's picture

Not to mention two of the largest retailers, Walmart and Target, are just plummeting.

AdvancingTime's picture

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Like the dance band on the Titanic that plays as the ship goes down most the people in this world are often oblivious to what is happening around them.Fuck it! It is what it is. The article below suggest we try to ignore it all and relax.