WORLDWIDE: HEADLINES
China factory growth picks up in May but inflation pressures build -Caixin PMI
China’s factory activity expanded at the fastest pace this year in May as domestic and export demand picked up, though sharp rises in raw material prices and strains in supply chains crimped some companies’ production, a business survey showed on Tuesday.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 52.0 last month, the highest level since December and inching up from April’s 51.9.
Analysts polled by Reuters had expected the index to remain at 51.9. The 50-mark separates growth from contraction on a monthly basis.
New orders rose at the strongest pace so far this year and a gauge for export orders was the highest since November, but the output reading, while still solid, was slightly lower than the previous month.
“Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages. Supply chains were also significantly affected,” Wang Zhe, senior economist at Caixin Insight Group, said in comments released alongside the survey’s findings.
A sub-index for input costs expanded at the fastest pace since 2016.
Manufacturers passed on some of the pressure to their customers, with a gauge for output prices rising at the quickest pace in a decade. Charges for exported goods rose at the fastest rate in three years.
Prices for commodities such as coal, steel, iron ore and copper have surged this year, fueled by the lifting of pandemic lockdowns in many countries and ample global liquidity.
Full coverage: REUTERS
Tesla’s vehicle price increases due to supply chain pressure, Musk says
The price of Tesla (TSLA.O) vehicles is increasing due to supply chain pressures across the auto industry, particularly for raw materials, Elon Musk said on Monday in response to a tweet.
“Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially,” Musk said in a tweet.
He was responding to an unverified Twitter account called @Ryanth3nerd, which said, “I really don’t like the direction @tesla is going raising prices of vehicles but removing features like lumbar for the Model Y…”
In May, Tesla increased its Model 3 and Model Y prices, the automaker’s fifth incremental price increase for its vehicles in just a few months, the Electrek website reported.
During an earnings conference call in April, Musk said Tesla had experienced “some of the most difficult supply chain challenges,” citing a chip shortage. “We’re mostly out of that particular problem,” he added at the time. read more
In response to the removal of lumbar support on the passenger side in Tesla’s Model Y, Musk said, “Moving lumbar was removed only in front passenger seat of 3/Y (obv not there in rear seats). Logs showed almost no usage. Not worth cost/mass for everyone when almost never used.”
Earlier on Monday, the Electrek reported that new Tesla Model Y owners are reporting that their electric SUVs are being delivered without lumbar support on the passenger side.
Full coverage: REUTERS
WORLDWIDE: FINANCE / MARKETS
Dollar in doldrums as traders ponder Fed policy path; sterling soars
The dollar languished near multi-month lows versus major peers on Tuesday as traders pondered the prospects for early policy normalization by the Federal Reserve ahead of a key jobs report at the end of the week.
The British pound rallied to a three-month peak at $1.425 while Canada’s loonie hovered near a six-year top, amid market expectations for policy tightening in those countries.
Australia’s dollar rose for a second day to as high as $0.77605 ahead of a central bank announcement at 0430 GMT on Tuesday, although economists predict no change to monetary policy.
The offshore Chinese yuan edged back toward a three-year high of 6.3526 per dollar reached Monday, last trading at 6.3640, paring a retreat spurred by the monetary authority’s tightening of banks’ FX requirements to stem the currency’s rise.
The dollar index, which tracks the greenback against six peers, was back below 90 from as high as 90.447 on Friday, when a measure of U.S. inflation closely watched by the Fed posted its biggest annual rise since 1992. The gauge sank 0.3% on Monday, in a market thinned by U.S. and British holidays.
Fed officials, led by Chair Jerome Powell, have said repeatedly they expect price pressures to be transitory and monetary stimulus to stay in place for some time, but investors are wary that a strong pandemic recovery could force the Fed’s hand.
The euro gained 0.1% to $1.22325 on Tuesday, not far from a nearly five-month high of $1.2266 touched last week.
The dollar fell for a second day against the yen, weakening 0.2% to 109.375. The pair had climbed as high as 110.20 on Friday, following the inflation data.
Full coverage: REUTERS
Brent rises to near $70 on demand prospects and ahead of OPEC+ meet
Oil prices rose on Tuesday ahead of an OPEC+ meeting and on optimism that fuel demand will grow in the months ahead with the summer driving season starting in the United States, the world’s top oil consumer.
Brent crude futures for August gained 56 cents, or 0.8%, to $69.88 a barrel by 0125 GMT. U.S. West Texas Intermediate crude for July was at $67.33 a barrel, up $1.01, or 1.5% from Friday’s close, with no settlement price for Monday due to a U.S. public holiday.
“While there are concerns over tighter COVID-19 related restrictions across parts of Asia, the market appears to be more focused on the positive demand story from the U.S. and parts of Europe,” analysts from ING Economics said in a note on Tuesday.
“In the U.S., the summer driving season officially got underway following the Memorial Day weekend, and we have entered this period with gasoline inventories already trending lower, and not too far from a 5-year low for this time of the year.”
Tracking firm GasBuddy said Sunday’s U.S. gasoline demand jumped 9.6% above the average of the previous four Sundays, the highest Sunday demand since summer 2019.
Still, price gains were capped as more output is expected to hit the market.
The Organization of the Petroleum Exporting Countries and allies – known as OPEC+ – is likely to stick to the existing pace of gradually easing oil supply curbs at a meeting on Tuesday, OPEC sources said, as producers balance expectations of a recovery in demand against a possible increase in Iranian supply.
OPEC+ decided in April to return 2.1 million barrels per day (bpd) of supply to the market from May to July, as it anticipated global demand would rise despite surging coronavirus cases in India, the world’s third-largest oil consumer.
Full coverage: REUTERS
World stocks set for 4th month of gains in data-heavy week
World equities were firmly on track to post a fourth straight month of gains on Monday, while the dollar struggled broadly ahead of a slew of European and U.S. data this week that will provide a clearer picture on the global economy’s recovery path.
MSCI’s broadest index of world stocks (.MIWD00000PUS) drifted 0.1% higher, putting the gauge on track for a 1.4% gain for May. It is the longest monthly rising streak for the index since August 2020, when it marked a five-month run of gains, according to Refinitiv data.
But U.S. stock futures and European cash equities trading was quiet on Monday due to holidays in the United States and Britain, with benchmark indexes sticking to well-worn ranges.
May has proven to be a decent month for asset markets, but policymakers are increasingly faced with the dilemma that inflation is running hot while the underlying structural economy is still struggling to gain traction.
The main event of the week will be U.S. payrolls on Friday with median forecasts at 650,000, but the outcome is uncertain following April’s unexpectedly weak 266,000 gain.
Although U.S. inflation data last week was above estimates, another big miss on the jobs front would heap pressure on the Fed to postpone plans to wind down its stimulus. read more
“The question is, therefore, whether by September the Federal Reserve will be in a position to announce a tapering of its bond purchases starting next year, and the odds are quite decent though it might be delayed to December,” said Sebastien Galy, a strategist at Societe Generale.
The Fed next meets on June 16, and this week will be the last chance for members to discuss policy before a pre-meeting blackout period starts on June 5.
So far, investors have taken the Fed at its word that the labor market needs to improve a lot more before it speaks of tapering. That helped yields on U.S. 10-year notes ease to 1.58% with Fed funds futures pricing in a first-rate hike by the first quarter of 2023.
Asian shares edged higher, and in Europe indexes consolidated gains after last week’s record close ahead of manufacturing PMI data on Tuesday.
Full coverage: REUTERS
