Data Response- China and Euro-zone Flash PMIs (May)

The flash estimate of China's unofficial manufacturing PMI, compiled by Markit, rose from a final reading of 48.9 in April to 49.1 this month (still weaker than expected). The output component remained a drag on the overall index in May but there were rises in all the other components. New orders and employment grew strongly implying that domestic demand was leading activity. Indeed, export orders fell, perhaps reflecting the recent appreciation of the trade-weighted renminbi. 

The latest PMI data support our view that further monetary and fiscal policy loosening in China are likely, including infrastructure spending and investment in social housing, which should be positive for industrial commodities demand. Capital Economics forecasts, the price of copper will strengthen further to $7,200 per tonne by end-2015, up from $6,215 currently. 

Otherwise, today's euro-zone flash PMIs softened again, pointing to a slowdown in activity in Q2. However, at 53.4, the composite PMI is still consistent with steady, if unspectacular, growth. More encouraging, at least for commodity producers, was that the weakness was centred in the services sector. The manufacturing PMI actually rose slightly to 52.3, from 52.0 in April, notes Capital Economics. A pick up in export orders, probably benefitting from the weakness of the euro, could also be positive for regional commodity demand.