Daily Comment (May 23, 2016)

by Bill O’Grady and Kaisa Stucke

[Posted: 9:30 AM EDT] The G-7 meeting ended with a reaffirmed pledge not to weaken currencies.  Japanese Finance Minister Aso said that the country will not be delaying a planned sales tax hike.  Additionally, BOJ Governor Kuroda indicated that the central bank is ready to use additional monetary stimulus as soon as this summer if conditions warrant.

Japanese and European PMI were generally soft, although the reasons seem to be temporary rather than indications of longer term trends.  Japanese manufacturing PMI remained below the expansionary line and also weakened from the month before.  Eurozone aggregate manufacturing disappointed, but remained above the expansionary line.  France’s manufacturing remained in contractionary territory, while Germany’s manufacturing was stronger than forecast (see table below in Foreign Economic News).

Expectations for a rate hike this summer are rising as Fed speakers indicate willingness to hike either at the June or July meeting.  Yellen’s speech on Friday was instrumental in shaping market expectations.

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