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Prospects Daily: US yields up, US ISM PMI shows contraction in manufacturing, Developing countries manufacturing PMIs slow

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Financial Markets…German bunds and U.S. Treasuries declined on Monday amid growing speculation that the U.S. central bank will curb the pace of its stimulus program sooner than previously expected following comments from Federal Reserve Bank of San Francisco President John Williams. German 10-year bund yield rose the most in three months, rising as high as to 1.57%, while U.S. 10-year bond rate rose 6 basis points to a 13-month high of 2.23%.

Japanese stocks extended their sell-offs on Monday, with Nikkei 225 index tumbling 3.7% to its lowest level since April 18, as concerns over China’s economy and earlier-than-expected ending of the U.S. stimulus program, and a stronger yen weighed on investors. The Nikkei  has dropped 16.8% from a 51/2 year high reached last month, but it has still risen 28% this far this year. The Topix index also fell 3.4% today, extending its decline to 14% from its recent highs on May 22.

Developing-country stocks slid for a fourth day, with the benchmark MSCI index falling 0.8% after a 2.9% loss in May, led by a sharp decline in Turkish shares. Turkey’s Borsa Istanbul National 100 Index sank 7.6%, the steepest decline since August 2011, as protests against Prime Minister Recep Tayyip Erdogan’s government spread nationwide. Turkish 2-year bond yield surged the most since 2006, rising 44 basis points to 6.51%.

High-income Economies…In the US, the ISM purchasing managers index (PMI) dropped to 49 in May, from 50.7 in April, signaling contraction for the first time since November 2012. The drop reflected contractions in both new orders and output and follows weak private consumption data last week, suggesting softer growth in Q2. However consumer sentiment remains upbeat, with the University of Michigan consumer sentiment index rising to 84.5 in May, well above the April reading of 76.4 and its highest since July 2007.

Eurozone PMIs showed that the manufacturing downturn eased in May for all countries surveyed, with the final Euro Area PMI posting a reading of 48.3 compared to flash estimates of 47.8, up from April’s four-month low of 46.7. Output and new orders rose in Germany for the first time in 3 months, although negative contributions from other components kept the PMI below 50 (at 49.4 in May vs. 48.1 in April).  Spain’s PMI moved to a 2 year high of 48.1 from 44.7, indicating at bottoming out of the rate of contraction,  while Greece’s PMI moved to a 23-month high of 45.3.

Developing EconomiesEast Asia and the Pacific: China’s manufacturing PMIs showed mixed signals in May. Official PMI improved in May to 50.8 (up from 50.6 in April) while the HSBC/Markit manufacturing PMI declined into contraction territory (below 50) to 49.2 (down from 50.4 in April).

Vietnam’s manufacturing contracted in May as PMI fell to 48.8, sharply down from 51 in April.
Europe and Central Asia: Russia’s manufacturing growth continued to slow in May with PMI declining for fourth consecutive month to 50.4, down from 50.6 in April.

Turkey’s manufacturing also continued to slow in May with PMI declining for the fourth consecutive month to 51.1 in May, down from 51.3 in April.

Latin America and the Caribbean: Brazil’s manufacturing PMI slowed to 50.4 in May, down from 50.8 in April. Even though it is still in the expansion territory, the manufacturing growth has been slowing down for four consecutive months.

Mexico’s manufacturing PMI was unchanged in May at 51.7 from April, however, rate of expansion remained at a nearly two-year low.

Middle East and North Africa: Egypt’s manufacturing contracted at a lower rate in May with PMI at 48.4, up from 44.2 in April.

South Asia: India’s manufacturing PMIs dropped to 50.1 in May from 51 in April, hitting the lowest level in more than four years. Production at Indian factories declined in May for the first time since March 2009, though moderately, reflecting the weaker gains in new business.

Sub-Saharan Africa: South Africa’s manufacturing remained unchanged with PMI in May at 50.4.

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