Recap 5-1-12

Main Items:

· US ISM improved to 54.8 in Apr vs 53 exp and 53.4 prev

· RBA cut rates 50bps to 3.75% vs 25bps expected. Quotes:

1. In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years

2. Over the coming one to two years, and abstracting from the effects of the carbon price, inflation will probably be lower than earlier expected, but still in the 2–3 per cent range

3. Since it last changed the cash rate in December, the Board has maintained the view that the setting of policy was appropriate for the time being, but that the inflation outlook would provide scope for easier monetary policy, if needed, to support demand. The accretion of evidence over recent months suggests that it is now appropriate for a further step in that direction.

· The US Home Ownership Rate was 65.4% in Mar, the same level as in early ’97. The rate hit a peak of 69.2% in ’04. Meanwhile, rental properties had a vacancy rate of only 8.8% in Q1, the lowest level in ~10 yrs – WSJ

· According to Citi, May has the largest positive net cash requirement (€66bn) as €71bn of gross supply easily outweighs the €5bn of coupon payments (and no redemptions). The net cash requirement in Italy & Spain moves sharply from negative in April to positive (in May) due to minimal coupon payments and redemptions in May.


  • China Mfg PMI increased to 53.5 in Apr vs 53.6 exp and 53.1 prev. The NBS report commented that the improvement was mainly attributable to the increase in large and mid-size enterprise PMI, which rose by 0.3-pt to 53.7. By contrast, the small enterprise PMI dropped by 1.8-pts to 49.1.
  • UK Mfg PMI declined to 50.5 in Apr vs 51.5 exp and 52.1 prev. Weakness was broad based, but new exports orders were especially badly hit, dropping 5.6 pts.
  • Australia Mfg PMI declined to 43.9 vs 49.5 prev
  • Australia house price Index declined to -4.5% YoY in 1Q vs -3.9% exp and -4.8% prev

Upcoming Data:

  • Tues: US Vehicle Sales, China HSBC Mfg PMI
  • Wed: Swiss Mfg PMI, Italy Mfg PMI. German Unemployment, US GDP, China Non-mfg PMI
  • Thurs: UK PMI Services, EU PPI, ECB, US ULC, Initial Jobless Claims, ISM Non-mfg, China HSBC Services PMI
  • Fri: Italy PMI Services, EU Retail Sales, US Payrolls, Unemployment


The US ISM report was pretty strong. Historical studies, however, suggest that the pace of improvements may stabilize here. The first chart below charts the ISM series since the cycle low, compared to the previous 3 cycles. The second shows the ISM prints this year vs the past few years.