Chinese factory activity expanded at the fastest pace in five months
in May but euro zone manufacturing growth slowed more than initially
thought, fuelling expectations that the European Central Bank will
ease policy this week.
"The Chinese numbers were fractionally higher. We are beginning to
make some progress but it is consistent with this story that the
Chinese economy is not going to grow as fast as it has in the past,"
said Peter Dixon at Commerzbank.
"The European numbers were in and around the ballpark. It's not the
kind of data the ECB is going to react to instantly but it is part
of a bigger puzzle that says we need more growth in Europe."
U.S. manufacturing growth probably accelerated in May, a report from
the Institute for Supply Management (ISM) is expected to show later
Markit's final Manufacturing Purchasing Managers' Index (PMI) for
the euro zone slipped to a six-month low of 52.2 in May from April's
53.4 as strong figures from Germany failed to offset a contraction
in activity in France.
The final number was below the initial reading of 52.5 but held
above the 50 mark that separates growth from contraction for the
11th straight month. A subindex measuring output sank to 54.3 from
56.5, weaker than the initial reading of 54.7.
"The slowdown in euro zone manufacturing activity in May reinforces
belief that the ECB will deliver a package of measures at its 5 June
policy meeting," said Howard Archer at IHS Global Insight.
To spur growth, boost lending and drive up inflation the ECB is
widely expected to cut its deposit rate to below zero, reduce its
main borrowing rate and launch a refinancing operation aimed at
businesses when it meets on Thursday.
Inflation in the 18 nations using the euro is predicted to have held
steady at just 0.7 percent in May, well within the ECB's "danger
zone" of below 1 percent and also below its preferred 2 percent
A key measure of German inflation, due later on Monday, is expected
to have fallen in May.
Germany is Europe's largest economy and again supported the tepid
overall growth but in France, the bloc's second-largest, the PMI
sank back below the 50 mark after just two months of expansion.
In non-euro using Britain manufacturing activity kept expanding at a
rapid pace in May, suggesting the economic recovery has lost little
of its shine this quarter.
The reassuring Chinese factory data and another record high for Wall
Street lifted world stocks and commodities on Monday, although
markets are waiting to see how far the ECB will go with policy
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China's official PMI, which is geared towards bigger, state-owned
firms, rose to 50.8 in May, from April's 50.4, the National Bureau
of Statistics said on Sunday, beating market expectations of 50.6.
"Recent pro-growth measures, which were stepped-up further last
Friday, may have lent a helping hand here," said Nikolaus Keis at
China's manufacturing data bolstered market expectations that the
world's second-largest economy is regaining strength as the
government's pro-growth measures kick in.
Beijing stepped up policy fine-tuning in recent weeks and has
unveiled a slew of measures this year to help shore up the economy,
which dipped to an 18-month low in the first quarter and is on track
to post the weakest annual showing in 24 years.
China's cabinet announced new easing measures on Friday to help
lower funding costs and reduce operating burdens for companies to
give more support for the real economy, adding to moves that
included hastening construction of railways and public housing.
In South Korea, Asia's fourth-largest economy and one of the leading
manufacturing and export powerhouses, the HSBC/Markit manufacturing
gauge slid below 50 while trade data showed exports fell.
In India, the manufacturing PMI edged up but came in slightly below
the median forecast in a Reuters poll. Indonesia's PMI surged to a
record high but hopes were tempered after its trade balance slipped
back into deficit in April after two consecutive months of
(Additional reporting by Andy Bruce in London, Adriana Nina Kusuma
and Nilufar Rizki in JAKARTA, Sumanta Dey in BANGALORE; Editing by
Richard Borsuk and Janet Lawrence)
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