June begins with the publication of macroeconomic data, which globally seems to improve the mood of investors. Indicators from Europe and China point to strong optimism, which boosts the chances of a sustainable economic recovery.
The Caixin China General Manufacturing PMI unexpectedly reached its highest level in five months in May, at 52 points. The market consensus and April's index were at 51.9 points, which may indicate a sustained recovery of China's post-pandemic economy. New orders rose the most since December 2020, export order growth was at its highest level in six months, and output continued to rise. Purchasing activity also rose solidly as customer demand continued to improve.
Employment remained almost unchanged, and order backlogs rose for the third consecutive month. On the pricing front, input cost inflation reached its highest level since December 2016. Higher raw material costs may have been the reason.
Selling prices rose at the steepest pace in more than a decade, and, as the report noted, soaring commodity prices began to disrupt the economy as some companies began to hoard goods while others suffered from raw material shortages.
European industrial activity index at a record high
In Europe, indices appear to be rising, with Frankfurt's DAX up more than 0.5 percent, nearing its highest level on record. This may be because investor optimism about strong economic growth was boosted by the aforementioned data from China, but also statistics from Europe, where the IHS Markit Eurozone Manufacturing PMI was revised up to 63.1 in May from a preliminary reading of 62.8. The reading indicated a record increase in activity in the industrial sector. Production was again supported by rapid growth in new orders.
A constraint on production was the continuing difficulty in obtaining raw materials from suppliers. Faced with supply delays, firms again used existing inventories wherever possible. In terms of prices, average input costs rose again sharply and the rate of inflation reached unprecedented levels due to widespread product shortages, and output inflation was the fastest in more than 18 years. Industrial employment rose for a fourth month. Finally, confidence about the future remained very positive.
The pound is helped by the UK's economic outlook
In the foreign exchange market, the British pound rose to its highest level since April 2018. Investors seem to have a strong economic recovery in the GBP buying perspective, helped by the ongoing efforts to reopen the economy and the rapid pace of COVID graft as the main growth drivers.
The UK economy is set to fully reopen on June 21, paving the way for a return to normalcy as three-quarters of its population is likely to have already received two doses of the Covid-19 vaccine within a month.
Fresh OECD forecasts released Monday showed the British economy is expected to grow 7.2 percent this year, which would make it the fastest-growing country among developed economies. In addition, some policymakers have signaled that the Bank of England could start raising interest rates earlier than expected, in 2022.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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