Market News

• Services PMI 46.4 vs 47.7 expected
• Prior 47.6
• Manufacturing PMI 51.4 vs 51.8 expected
• Prior 52.2
• Composite PMI 47.5 vs 48.8 expected
• Prior 48.6

The fallout from the Middle East crisis intensifies as euro area business activity takes a big knock in May, no thanks to a hit to demand conditions and surging cost pressures. France was the most notable drag among the big names, as seen earlier here.

As for the overall Eurozone readings above, the manufacturing print was a 3-month low while the services print was a 63-month low. Meanwhile, the composite print was a 31-month low. All in all, it points to near certainty that the euro area economy will contract in the second quarter of the year.

New business in the services sector in particular was weak,…

Earlier in the day, Iran media reported that Pakistan’s army chief was due in Tehran on Thursday. Adding that this is largely to continue mediating the situation with the visit aimed at continuing "talks and consultations". That considering the fact that Iran is still reviewing the latest US peace proposal to the conflict.

So far, the only official response from Iran is that they are still examining the US proposal and have not yet given an answer to that. However, the visit of Pakistan's army chief is now starting to stir up some rumours and murmurs of an imminent deal to be announced.

Al Arabiya (who have been inconsistent in terms of reporting accuracy since the war started), is saying that the visit is taking place upon the approval of…

• Services PMI 47.9 vs 51.7 expected
• Prior 52.7
• Manufacturing PMI 53.7 vs 53.0 expected
• Prior 53.7
• Composite PMI 48.5 vs 51.6 expected
• Prior 52.6

Ouch. That's a big miss on the services print as business activity there falls to the lowest in 64 months. That's leading UK economic activity to contract in May, with the composite print being the weakest in 13 months.

Service firms signaled the sharpest decline in business activity since January 2021 citing greater economic hesitancy and weaker investment sentiment among clients, alongside delayed consumer spending decisions in response to the Middle East conflict. Aside from the Covid pandemic, the latest reading was the lowest for nearly a decade (July 2016).

As for the stronger manufacturing print,…

• Manufacturing PMI 49.9 vs 51.0 expected
• Prior 51.4
• Services PMI 47.8 vs 47.0 expected
• Prior 46.9
• Composite PMI 48.6 vs 48.4 expected
• Prior 48.4

After the dismal French numbers earlier, this is arguably some little bit of comfort for investors despite German economic activity showing a contraction for a second month running. The Middle East conflict continues to bite at demand conditions while at the same time driving up price pressures in Europe's largest economy.

As manufacturing activity starts to feel the heat now after the frontloading in March and April, the only bit of good news is that at least the services sector did not suffer worse conditions than seen in April.

With the German economy poised to contract in the second quarter now,…

• Services PMI 42.9 vs 46.6 expected
• Prior 46.5
• Manufacturing PMI 48.9 vs 52.2 expected
• Prior 52.8
• Composite PMI 43.5 vs 47.7 expected
• Prior 47.6

Welp, there goes the floor. The pain is starting to hit now as the fallout from the Middle East conflict intensifies. The headline services print and the composite print are the lowest in 66 months, marking the steepest decline in French economic activity in five-and-a-half years. Yes, it's the biggest dip in activity since the Covid pandemic period.

Firms frequently cited fuel and energy cost pressures, as well as general economic angst, as reasons for lower output.

And after some frontloading activity in March and April, manufacturing output also fell back into contraction territory in May.

In adding…

It don't matter the context and it certainly don't matter the veracity of the comment. In this market, it seems that what matters is just the who. And when Trump says something, markets move. In the latest episode, his comment about the US being in the "final stages of talks" with Iran was enough to turn the tide in risk sentiment yesterday.

The overall market mood was more tepid and cautious all through this week, but there were some steadier hands yesterday. And dip buyers were rewarded with Trump delivering another positive headline, even if there wasn't much backing to it. Coincidence? I don't want to be one to say but it wouldn't be the first time.

As for Trump's remarks, it is once again very on-brand of him to stick with this script.…

• Goldman Sachs says global oil stockpiles falling at record pace as Hormuz flows hit 5%
• Intervention by the Reserve Bank of India sends the rupee sharply higher.
• South Korea confirms launch of 24-hour dollar-won trading from July 6 in MSCI upgrade push
• Japan April exports beat forecasts for eighth month as crude oil imports collapse
• Australia unemployment jumps to 4.5% in April, highest since November 2021
• Bank of Japan policy board member Koeda says underlying inflation already around 2%
• Australian April Unemployment rate 4.5% (vs. expected 4.3%, prior 4.3%)
• PBOC sets USD/ CNY mid-point today at 6.8349 (vs. estimate at 6.7955)
• Japan flash PMI slips to five-month low in May as selling prices hit record high
• KOSPI sidecar triggered as futures surge…

Japan's April exports rose 14.8% year-on-year, well above the 9.3% forecast, producing a surprise trade surplus of 301.9bn yen, as crude oil import volumes collapsed 64% in their steepest fall since 1980.

Earlier:

• Japan data shows a massive trade surplus beat in April as exports rocket
• Bank of Japan policy board member Koeda says underlying inflation already around 2%
• Japan flash PMI slips to five-month low in May as selling prices hit record high

Summary:

• Exports rose 14.8% year-on-year in April, beating the 9.3% forecast and extending the run of positive annual growth to eight consecutive months
• Exports to the US rose 9.5% and to China 15.5% year-on-year
• Imports grew 9.7%, above the 8.3% forecast, despite a collapse in crude oil shipments
• Crude…

Australia's unemployment rate rose unexpectedly to 4.5% in April from 4.3%, its highest since November 2021, as employment fell by 18,600 against expectations of a 17,500 gain, complicating the RBA's rate path.

Summary:

• Employment fell by 18,600 in April against an expectation of a 17,500 gain and a prior reading of 17,900 added jobs
• Full-time employment declined by 10,700 and part-time employment fell by 7,900
• The unemployment rate rose to 4.5%, above the 4.3% forecast and the highest level in four and a half years
• The participation rate slipped to 66.7% from 66.8%, below the 66.8% expectation
• Youth unemployment edged above 11%, a level that has historically served as a leading indicator of broader economic weakness
• Hours worked rose 0.8%, a…

Terrible data:

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I'll have more to come on this separately, details etc.

Background to this:

• Preview: Australia April jobs data eyed as AUD rally and RBA rate path hang in balance

Earlier data:

Melbourne Institute Inflation Expectations (May) 5.6%

• prior 5.9%

Japan's flash composite PMI eased to 51.1 in May from 52.2 in April, a five-month low, as services activity stalled for the first time in over a year and selling prices rose at the sharpest pace in nearly 19 years of data, per S&P Global.

Summary: All bullets per S&P Global Flash Japan PMI release, May 2026, with comment from Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence:

• The composite PMI output index fell to 51.1 in May from 52.2 in April, the weakest reading in five months, marking the fourteenth consecutive month of expansion
• Manufacturing PMI eased to 54.5 from 55.1, with output at 54.1, remaining robust but partly driven by stockpiling linked to Middle East supply disruption
• Services business activity…

South Korea to extend fuel tax break until end-July, Yonhap says

Info via Reuters.

• Yonhap citing the finance ministry.
• Measure is part of government efforts to allay the burden on drivers from higher fuel prices, it said.