Key facts
- US manufacturing activity reached its highest level in four years in May, with the ISM PMI at 54.0.
- Canada's services PMI rose to 50.6 in May, an 18-month high, but operating costs accelerated.
- Eurozone preliminary May CPI rose 3.2% year-over-year, with core CPI increasing to 2.5%.
- Supply chain stress is at its fastest pace since the early pandemic, with logistics costs at decade highs.
- China's crude oil imports fell to an estimated 6.36 million barrels daily in May.
- US private employers added 122,000 jobs in May, and wages rose 4.4%.
- Initial jobless claims in the US rose to 225,000 for the week ended May 30.
- Eurozone construction activity contracted in May due to supply issues.
- UK house prices fell 0.6% in May.
- Japan's services activity remained flat at 50.0 in May, the weakest pace since early 2025.
Global economic activity presents a complex picture in May, with notable expansions in manufacturing sectors contrasting with persistent inflation and supply chain disruptions. The US manufacturing sector saw its strongest performance in four years, with the ISM manufacturing PMI rising to 54.0, driven by businesses ordering ahead due to rising prices and shortages. This resilience was also seen in Canada, where the services PMI reached an 18-month high of 50.6, though operating costs accelerated due to higher fuel and wage expenses. Conversely, Eurozone manufacturing growth slowed to a PMI of 51.6, with input costs hitting a four-year high and firms increasing prices at their fastest rate in three-and-a-half years, complicating the European Central Bank's inflation control efforts. Eurozone construction activity also contracted in May due to persistent supply issues.
Geopolitical tensions, particularly in the Middle East, are significantly impacting global markets and supply chains. Disruptions around the Hormuz chokepoint have caused supply chain stress to surge at its fastest pace since the early pandemic, pushing logistics costs to their highest levels in nearly a decade and raising inflation fears. This has led to a hawkish repricing of central bank rate hike expectations globally, with the ECB and BoJ leaning towards June hikes, and slightly increased expectations for the Fed. Oil prices surged due to US-Iran strikes, contributing to record input cost jumps for Eurozone factories. China's crude oil imports fell to an estimated 6.36 million barrels daily in May, down from 8.10 million in April, attributed to the Iran War, though substantial stockpiles provide a buffer. Despite this, China's Q2 industrial activity shows improvement, though weaknesses persist, with an export-led expansion characterized by larger scale and more advanced goods.
In labor markets, US private employers added 122,000 jobs in May, exceeding forecasts, with wages rising 4.4%. However, initial jobless claims increased to 225,000 for the week ended May 30, though the labor market is considered stable. The US services sector expanded at a slower pace, with the ISM Services PMI falling to 54.5 in May from 59.2 in April, marking 23 consecutive months of growth but with declining new orders and business activity. Japan's services activity remained flat at 50.0 in May, the weakest pace since early 2025, reflecting slowing economic momentum. Egypt's non-oil private sector contracted in May due to escalating business costs and a weakening pound. Chile's economic activity fell 1.2% in April, marking the fourth consecutive month of contraction, primarily due to mining.
Other notable developments include China directing steelmakers to avoid discussing Fortescue's new iron ore product, potentially impacting supply contracts. Chinese automakers are expanding in Europe with competitive pricing, challenging established brands. Japan's foreign exchange intervention to support the Yen likely contributed to a spike in US Treasury yields in May through selling US Treasury securities. UK house prices fell 0.6% in May, showing sensitivity to geopolitical tensions. Germany's retail sales fell 0.3% in April, a better-than-expected result, while German engineering orders rose 5% year-on-year in February-April, driven by foreign demand.