FYI: Total long-term flows have been slightly negative over the two weeks ended May 29, with bonds and equities posting contrasting figures. Around $600 million were withdrawn from long-term mutual funds over the two-week period compared to inflows of more than $4 billion in the prior period.
Equities saw nearly $3.5 billion in outflows, with domestic and multi-cap funds largely bearing the brunt of investor flight. At the same time, bonds experienced $4.8 billion in inflows, with taxable bonds and investment-grade bonds particularly liked by investors.
U.S. GDP for the first quarter of 2019 was revised slightly lower from 3.2% to 3.1%, amid a flurry of bad news as the trade war is starting to hit the global economy.
In a sign of potential distress, Chinese manufacturing purchasing managers’ index (PMI) came in at 49.9 for May, a number indicating industry contraction. In the prior month, the index stood at 50.1. Meanwhile, Caixin manufacturing PMI, a private survey of China’s factory sector, came in at 50.2, showing a slight expansion mode.
U.S. manufacturing PMI declined to a 30-month low to 52.1 from 52.8 in the prior month. Just last September, the index was hovering near 10-year highs of 61.5.
Euro area annual inflation fell to 1.2% in May from 1.7% in the prior month, prompting the European Central Bank to promise a boost to its current monetary stimulus. Core CPI was even worse at 0.8% compared to a revised 1.3% in the prior 30-day period. Analysts had expected the headline figure to come in at 1.4% and a core figure of 1%.
The European Central Bank strongly signaled that it may further cut interest rates in the Euro area if growth slows down. Reports also surfaced that policymakers are ready to cut interest rates further in order to drive down the value of the euro and spark a recovery.
In another sign that the trade war is taking a toll on growth, the U.S. economy added just 75,000 jobs for the month of May, triggering speculation that the Federal Reserve’s next move will be a cut to interest rates. In the prior month, employers added 224,000 people onto their payrolls. The unemployment rate remained at 3.6%, while average hourly earnings rose 0.2%.
The U.K. economy shrank by 0.4% in April largely due to higher inventories. Analysts had expected a drop of 0.1%.