The week in review
- Pending home sales -3.9% in Apr.
- Durable goods orders +0.4% in Apr.
- UMich consumer sentiment at 58.4 in May
The week ahead
- Unemployment rate
- Average hourly earnings
- S&P Case-Shiller national home price index
Thought of the week
As illustrated by the Flash PMIs, growth stayed resilient in May, as lackluster manufacturing prints were offset by a strong services showing. The U.S. headline composite index came in at 53.8 (vs. 56.0 in April), the eurozone at 54.9 (vs. 55.8), the UK at 51.8 (vs. 58.2) and Japan at 51.4 (vs. 51.1). Compared to April, the headline prints did cool a bit, but nonetheless remained expansionary. On the manufacturing side, input prices stayed elevated with the rate of cost inflation at manufacturers now sitting just a stone’s throw away from its all-time high. This should come as no surprise as we have already been seeing this messaging on the corporate side in 1Q earnings reports. The surge in prices continues to be driven by upticks in the prices for raw materials, as well as higher interest rates, fuel costs and higher transportation fees. On the services front, optimism among service sector firms strengthened with many anticipating that staffing and material shortages should begin to ease in 2H22. The loosening of COVID-19 restrictions continues to serve as a tailwind for overall growth, providing a boost to recreation activities and tourism. This was particularly true in the eurozone, which saw its second-strongest services expansion in the last 8 months. While the post-pandemic growth momentum is beginning to moderate, we do not think it is coming to a screeching halt. As markets recalibrate to the evolving economic environment, expect continued volatility and reduce risk levels accordingly by adding quality to portfolios, through core bonds like investment-grade credit and defensive equity sectors like health care. Later in 2022, we should see support for earnings and potential for better returns as uncertainty dissipates.