Daily Market Outlook, May 24, 2022

Overnight Headlines

Asian equity markets have fallen this morning despite yesterday’s gains in Europe and the US. Futures for the US are also down as reports suggest that tech stocks are leading the sell-off. A further rise in Covid cases in China and that yesterday’s optimism about a US tariff reduction on Chinese goods may be misplaced have also be cited as concerns. In the UK, Northern Ireland Secretary Lewis said that the government plans to introduce a bill to override the Northern Ireland protocol in the Brexit deal within three weeks.

Just released data showed UK government borrowing for April, the first month of the new financial year, at £17.8bn. That was close to expectations and down from £23.4bn at the same point a year ago. Meanwhile, media reports suggest that Chancellor Sunak is preparing plans for a windfall tax on power generators and oil & gas companies.

Today’s ‘flash’ estimates for the May manufacturing and services PMIs are potentially the most interesting releases of the week in the UK. While showing some evidence of slowing growth in the past couple of months partly as post-Omicron impetus begins to fade, both measures still point to continued growth. That means they seem more positive than official GDP data which showed no growth in February and a small fall in March. The May readings will again be impacted by the Ukrainian crisis and by Covid restrictions in China but, overall, expect another set of solid prints. Look for the manufacturing measure rising to 56.5 from 55.8 in April and the services measure down to 57 from 58.9.

Eurozone PMI data will also provide indications of May economic trends. As in the UK, the Eurozone PMI data are still solidly in growth territory, expect that to once again be the case in May. However, look for both measures to be down from their April levels. In the US, PMI data tend to be less closely watched than the longer-running ISM surveys. However, those will not be available for another week. In the meantime, the US PMIs are forecast to show both manufacturing and services mostly still growing at a relatively strong pace.

The latest New Zealand central bank policy update due early Wednesday is expected to result in the fifth increase interest rates. Rates have already gone up from a low last October of 0.25% to 1.5%. However, economists are split over the size of this week’s rise with a majority forecasting a second successive 50 basis point increase to 2% but some suggesting a smaller hike of 25bp.