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​Prospects Daily: The euro weakens to nearly three-month low, U.S. PMI climbs in May, China’s official manufacturing PMI at five-month high

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Financial Markets
 
The euro depreciated versus the dollar on Monday, trading almost at a three-month low, as slowing inflation in Germany and weaker-than-expected manufacturing growth in the Euro Zone fueled speculations the European Central Bank will adopt an aggressive monetary easing this week. The single currency fell 0.2% to $1.3595, not far from $1.3586 touched on May 29, the weakest level since February 13. Meanwhile, the euro strengthened 0.2% versus the yen to 139.04 after depreciating 2.1% last month.
 
Developing-country stocks rebounded slightly from the steepest drop in a month as Russian equities rallied. The benchmark MSCI Emerging Market Index rose 0.1% today after sliding 1.1% last Friday as Russia’s Micex index advanced 2.8% to a three-month high. Notably, Egypt’s benchmark stock gauge climbed from its biggest daily drop (4.2%) in nearly a year on Sunday in the wake of government’s submission of new tax law for the president’s ratification.
 
 
High Income Economies
 
The Institute of Supply Management (ISM) purchasing managers’ index (PMI) for the U.S. climbed to 55.4 in May from 54.9 in April, indicating expansion in manufacturing for the 12th consecutive month.  The latest increase was driven by an increase in new orders and production growth, while employment growth decelerated.
 
The Markit Eurozone Manufacturing PMI decreased to 52.2 in May, down from 53.4 in April.  The latest reading is the lowest in six months and came in below the earlier flash estimate (52.5), but remained at a level consistent with a solid improvement in operating conditions.  The easing reflected slower rates of expansion in production, new orders, employment and a sharper cut in inventories of purchased goods.  Almost all of the nations covered saw their PMIs remain above the 50.0 no-change mark, but only the Netherlands and Spain reported faster rates of growth.  France, in contrast, fell back into contraction after expanding in the prior two months.
 
Signaling a broad stabilization in business conditions following the decline in April, the Markit/JMMA manufacturing PMI for Japan posted at 49.9 in May, up from 49.4 in April.  Firms saw a decline in output, new orders and new export orders.  However, rates of decline for both new orders and output eased from those seen in April.  Employment numbers grew in May for the tenth month running, albeit at a slower pace.
 
 
Developing Economies
 
East Asia and Pacific  
China’s official manufacturing Purchasing Managers’ Index rose to 50.8 in May, its fastest rate of expansion in five months, up from 50.4 in April, remaining above the 50-no change mark, which denotes expansion, and beating economists’ forecast of 50.6. The new orders sub-index, a gauge of domestic and external demand, improved to 52.3, its highest level since November 2013, up from 51.2 in April. The export orders sub-index rose at a slower pace, inching up to 49.3 from 49.1 in April, remaining below the 50-mark, which denotes contraction.
 
Indonesia’s Markit/HSBC manufacturing PMI rose to a record high 52.4 in May from 51.1 in April, remaining above the no-change 50 mark for nine consecutive months. The new orders sub-index rose for the eighth consecutive month, with incoming new work accelerating to its highest level. New business from abroad also expanded at a rapid rate, fueled by an increase in demand from key export markets. Input cost inflation slowed, and factory gate prices rose at their weakest pace since August 2013; while employment fell.
 
South Asia  
India’s manufacturing PMI continued to rise in May, inching up to 51.4 from 51.3 in April, supported by rising new orders. Incoming new work increased for the seventh consecutive month. New orders from abroad rose for the eighth consecutive month and at a faster pace than in April, boosted by favorable exchange rates. Employment also continued to improve in May, expanding for the eighth consecutive month. Input costs rose at the weakest pace in 12 months, while output prices rose moderately.
 
Sub-Saharan Africa  
South Africa’s Kagiso manufacturing PMI fell to a seasonally adjusted 44.3 in May, its lowest level since August 2009, down from 47.4 in April, remaining below the 50 no-change mark, which indicates contraction. An 18-week strike in the platinum industry led to a sharp decline in industrial production and weakened manufacturing. The employment sub-index fell to a five-year low 37.2 in May from 44.6 in April; while the new sales order sub-index edged higher to 44.8 from 43.5. 
 

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