MANUFACTURING PMIs
Eurozone: Inflationary pressures ease and factory production growth quickens in June
The S&P Global Eurozone Manufacturing PMI registered above the 50.0 mark and therefore in expansion territory for a fifth consecutive month in June. It did tick down, however, from 51.6 in May to 51.4.
Euro area goods producers closed out the first half of the year with a sixth successive month of rising output volumes. Furthermore, the pace of expansion accelerated from May’s four-month low. Of the constituent countries covered by the PMI survey, only Spain and France failed to register production growth in June.
After stagnating in May, the latest survey data signalled a rise in new orders received by eurozone manufacturers. The increase was only marginal, however. Export demand remained a drag, having decreased for a second month in succession.
The volume of raw materials and semi-finished goods purchased by eurozone manufacturing firms declined in June, ending a three-month spell of growth. Instead, inputs to production were taken directly from stock, as evidenced by a monthly contraction in pre-production inventories. The rate of depletion quickened and was the sharpest since January.
The use of pre-purchased materials allowed eurozone manufacturers to lessen the operational impact of supply-chain disruption. June signalled that vendor capacity remained stretched. That said, there were some signs of alleviating pressures as the respective sub-index rose to a three-month high. It did, however, remain well below the level seen prior to the outbreak of the Middle East war.
Nevertheless, eurozone manufacturers were able to keep on top of workloads. In fact, they even managed to make inroads into their backlogged orders in June for a second straight month. This was despite a continued reduction in factory payroll numbers. The extent to which jobs fell was moderate and slower than in May.
A notable finding in the latest PMI survey data was regarding prices. The rate of input cost inflation, albeit still elevated, declined in June and was its softest since March. This followed on from a sustained upward climb in the underlying sub-index that goes as far back as September last year. As for their own price-setting, eurozone manufacturers were less aggressive. The rate of output charge inflation eased to a three-month low.
Finally, business confidence picked up again in June, indicating a further improvement after slumping to a 17-month low in April. Expectations for the year ahead remained slightly below their historical trend, however.
China: Manufacturing conditions improve further in June, completing strongest quarter since 2020
The headline seasonally adjusted RatingDog China General Manufacturing Purchasing Managers’ Index™ (PMI) posted above the 50.0 no-change mark for the seventh month running in June, indicating an improvement in manufacturing conditions. The PMI eased to a three-month low of 51.7, from May’s 51.8, but remained above the long-run survey trend of 50.8 since 2004. Moreover, the average reading for the second quarter was 51.9, the strongest for any quarter since the fourth quarter of 2020. The PMI had positive overall contributions from all five components in the latest period.
The volume of new orders received by Chinese manufacturers rose for the thirteenth month running in June, the joint-longest sequence (with June 2020 to June 2021) since 2018. June data did highlight a second successive monthly fall in new export business, but at only a marginal pace.
Higher new orders supported further growth of Chinese manufacturing production in June. The rate of expansion eased to a three-month low but was still comfortably above the long-run survey trend. On a quarterly basis, output growth in the second quarter was the strongest since the second quarter of 2024.
New export business fell for the second month running, albeit marginally.
To support rising new orders and production, manufacturers boosted employment for the first time in three months in June. Moreover, the rate of job creation was the strongest since August 2023.
Despite higher staff levels, the level of backlogged work increased for the fifth month running. That said, the rate of growth was stable and remained below the long-run survey trend, and manufacturers were able to raise their inventories of finished goods for the third month running.
A key theme of the latest survey findings was easing cost pressures. Average input prices paid by Chinese manufacturers rose for the twelfth successive month in June, the longest sequence of inflation since the first half of 2022. That said, the rate of increase slowed further from April’s four-year high to the weakest since January.
Although costs rose more slowly in June, the rate of output price inflation edged up slightly since May. Charges have increased for six consecutive months, the longest sequence since 2021.
The 12-month outlook for manufacturing production in China remained positive in June. Local goods producers linked confidence to expected increases in new orders, business development, new products and improvements to production capacity. The overall degree of optimism was the softest since January, however.
Suppliers’ delivery times lengthened for the fourth month running in June, but the extent of delays was only marginal and the lowest over this sequence. Moreover, longer lead times were confined to the investment goods sector, with speedier deliveries for makers of consumer and intermediate goods.
Manufacturers ordered more inputs in June, and the rate of growth in buying activity was stronger than the long-run survey trend for the fifth successive month. Stocks of purchases rose for the seventh month running, the joint-longest sequence (with June to December 2020) since 2007.
ASEAN manufacturing sector loses growth momentum in June
(…) The slowdown in the ASEAN manufacturing sector at the end of the first half of the year reflected weaker expansions in new orders and output. Production was raised only marginally, the rate of increase being the joint-softest in the current 12-month run of growth (equal to April).
Meanwhile, new export orders fell strongly and at an accelerated pace. (…)
Turning to prices, both cost burdens and charges rose at moderated rates in June. That said, the degree of moderation differed, with the pace of input cost inflation softening notably since May, while charge inflation slowed only slightly.
Japan: June PMI data rounds off best quarterly performance since Q1 2014
Manufacturing companies operating in Japan continued to see a marked improvement in business conditions in June. Furthermore, the latest PMI® data pointed to another solid rise in production amid the quickest upturn in sales since the start of 2022.
New order growth was partly fuelled by the ongoing conflict in the Middle East, however, as clients looked to build up their inventories amid severe supply chain disruption and sharply rising prices. (…)
Challenges around supply were underscored by widespread reports of vendor shortages and shipping delays due to the war, which led to a further rapid lengthening of average lead times. (…)
At the same time, inventories of finished goods fell for the twenty-second month in a row as companies used current stock to fulfil orders.
Greater strain on supply chains and product shortages led to further upwards pressure on prices in June. Notably, the rate of input cost inflation was unchanged from May’s 44-month record and among the quickest seen since the survey began in 2001. Higher prices were cited for a range of inputs, including raw materials, oil and transport.
To help reduce pressure on margins, manufacturers in Japan raised their own selling prices again in June. Although easing since May, the rate of charge inflation remained among the quickest in the series history.
May 2026 JOLTS Report: More of the Same
Today’s JOLTS data prove that the job market is definitely not broken, which is good news, but it’s also not really moving. There are a good number of job openings, but people aren’t going anywhere, and that represents a problem of its own. (…)
The quits rate is one of the most reliable signals of worker confidence in the labor market, and stood at just 1.9% in May. It has now been at or below 2% for almost a year straight, well below pre-pandemic norms and the 3% peak in the Great Resignation era of early 2022. Workers tend to quit jobs when they believe something better is within reach, and right now the data indicate that many clearly don’t.
Since peaking in May 2022, the quits rate has fallen in almost every sector. The rate in the typically churn-heavy leisure and hospitality sector dropped from 5.8% to 4%, and the information sector, home to most tech jobs, dropped from 1.9% to 1.1%. The message is consistent: workers’ confidence in their ability to quit and find a better opportunity elsewhere has fallen dramatically over the past four years.
This low confidence extends beyond current employees; headline job opening numbers don’t automatically translate to real opportunities for job seekers. Total hires remained unchanged at 5.2 million, continuing a puzzling divergence as job openings and total nonfarm employment rise but actual hiring remains subdued. This is not a contradiction; it just means that recent employment gains are being driven more by a historic drop in separations than by new hiring activity. Fewer people are losing or leaving their jobs, but not many more people are getting them.
Ed Yardeni:
- Total job openings ticked up to 7.5 million in May, the highest since May 2024, signaling improving labor demand. Meanwhile, the share of small businesses with job openings fell to 29.0% in May, and the share of consumers describing jobs as plentiful edged down to 24.9% in June. We give more weight to hard data (e.g., today’s JOLTS report) than to soft data from surveys.
- The World Cup footprint is visible in the labor data too. Robust hiring during May in leisure, hospitality, retail, and transportation likely reflects firms staffing up for the tournament. Beyond the World Cup effect, solid hiring in construction and manufacturing is consistent with the AI building boom.
What will murder the bull market? As the investment adage goes, stock runs don’t die of old age
(…) Every major bull market peak of the past 125 years was preceded by a sharp rise in policy rates. But the equity market reversals from the previous peak valuations, seen in 1907, 1929, 1973 and 2000, were preceded by major policy moves, with rates rising between 2 and 4 percentage points — not the 0.5 point rise currently discounted in futures markets.
For this bull market to come to an end, the momentum of the AI “bubble” will have to burst. For now, AI earnings remain strong and sales remain healthy.
But many investors are getting concerned about the scale of the AI capex build-out, its impact on capital issuance, and hyperscaler cash flows. So far, the willingness and capacity of investors to fund the likes of Anthropic, OpenAI and SpaceX remains strong.
Even if these companies raise a collective $200bn in their initial public offerings, US retail investors have $2.3tn of cash available to invest, according to Fed data, while US institutions have a further $6tn. This suggests that there should be funds available for these issues without major market disruption.
The other concern is that AI hyperscaler capex is expected to reach $2.5tn over the next three years, potentially creating cash flow stress for them.
But, for us, the key lesson from the end of the dotcom bubble is that the main risk will probably come from deterioration in the cash flow of the AI sector’s prospective customers. So, investors should be more concerned about any deceleration in the earnings and cash flow of the potentially heavy AI user sectors, such as financials, manufacturers, media, transportation, education and healthcare.
The key to the eventual end of the bull market will be rate rises of a scale to challenge economy wide corporate profits and cash flows. For now, it is likely that this AI-driven bull market will probably persist. So, while we may be in the end game of this bull market, we are not yet at the end of the game.
FYI:
Rubner Citadel: The fastest growth in equity ownership is occurring among households that historically had the lowest market participation rates. Today, the bottom 50% of US households own more than $615 billion of equities and mutual funds, a record high. (@MikeZaccardi)
FYI #2:
The US Supreme Court threw out longstanding federal limits on spending by political parties in coordination with candidates, in a ruling likely to help Republicans in the November midterms.
The 6-3 decision extends a line of Supreme Court rulings rolling back campaign finance regulations as violating the Constitution’s free speech clause. The case divided the court along ideological lines, with the three liberal justices in dissent.
The majority overruled a 2001 Supreme Court decision that upheld the caps as a means of tackling corruption and preventing the circumvention of separate limits on direct contributions to candidates.
Right with the times. Who cares about corruption in the USA nowadays?
- Trump Made More Than $1 Billion on Crypto Deals, Part of 2025 Windfall The president also brought in vast sums from licensing and legal settlements, according to an annual disclosure.
- Trump made far more trades than previously known. Stock trades made in Trump’s name reveal bursts of buying and selling around important announcements by companies and his administration.
- US president also earned hundreds of thousands of dollars from licensing of Bibles, watches and perfume
- Trump Cut a Billion-Dollar Mining Deal. His Sons Stand to Profit. An agreement between the U.S. and Kazakhstan has given a group of American investors with ties to the president and the commerce secretary access to one of the world’s largest untapped reserves of tungsten.
- Trump’s Friends Gave Him Tickets to World Cup, Super Bowl and Ryder Cup Federal disclosures show the president received dozens of tickets from team owners and allies to major sporting events.
- Trump’s financial disclosure stretches more than 900 pages.
- Political Speech Wins Again at the Supreme Court
$peech ain’t free…
(AI generated)