Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
US registers another month of robust jobs growth and manufacturing data remains strong
The US labour market surprised economists by adding 390,000 jobs in May - more than consensus estimates of 318,000 - as the jobs market remained robust despite attempts by the US Federal Reserve (Fed) to cool demand and the ongoing pressure of a tight labour market. The US jobless rate now stands at 3.6%, a mere 0.1% above the level seen just before the pandemic in February 2020.
Manufacturing data also indicated a strong economy, the ISM Manufacturing PMI surprising to the upside at 56.1 versus consensus forecasts of 54.5. Business sentiment remained optimistic, despite manufacturers continuing to warn of inflationary pressures to input prices.
This data adds to the argument that the Fed will have to increase rates further and tighten policy faster in order to tame inflation. As a result, US equity markets fell, with the tech-heavy Nasdaq ending the week down 1%.
China continues reopening as PMI data shows restrictions have significant effect on activity
The success of China’s Dynamic Zero-COVID policy in supressing community transmission in Shanghai and Beijing allowed those cities to remove restrictions in the first week of June. Most of the restrictions have been lifted in both cities, but strict 72-hour rolling testing of residents will remain in place and social areas will open with reduced capacity.
The success of the Zero-COVID policy in tackling the outbreak in Shanghai is likely to encourage the Chinese Communist Party to stick with this approach, which has been widely criticised in the West. Moving forward, outbreaks are likely to be met with swift and strict restrictions in order to avoid a repeat of the situation in Shanghai.
The news came alongside Caixin PMI data indicating that economic activity continued to shrink in May. Although the headline composite index rose from 37.2 to 42.2, any number below 50 indicates that economic activity is contracting.
It was another volatile week across major equity markets, with the MSCI All Countries Index down 1.1% in US dollar terms, while the MSCI China index finished the week up 1.3% following the news that the lockdown in Shanghai will start to be lifted.
Bond markets also fell, with longer-dated gilts being particularly hard hit. The 10+ Year UK Gilt index ended the week down 2.6% and down 20% for the year to date.
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