Ripple's Hinman Victory: Is This the Turning Point?

In May 2023, the United States experienced contrasting trends in its manufacturing and service sectors, as indicated by the latest Purchasing Managers' Index (PMI) data released by S&P Global. While the manufacturing sector contracted unexpectedly, the service sector showed robust growth, leading to an overall expansion in the country's private sector. This article provides a detailed analysis of the PMI figures, highlighting the key factors influencing each sector's performance and their potential implications for the US economy.

The US Manufacturing PMI for May stood at 48.5, declining significantly from April's reading of 50.2 and falling short of the forecasted 50. This contraction represents the sharpest decline in the manufacturing sector in three months, signaling a renewed deterioration in operating conditions. The main drivers behind this decline were weak demand and reduced inventory needs resulting from improved delivery times and lower new order inflows. Output also slowed during the period, albeit with a notable rise in employment, marking the sector's highest job creation rate since September. The increase in capacity helped manufacturers tackle incomplete work, leading to a sharp decline in backlogs, the fastest in three years. Moreover, input prices fell for the first time since May 2020, and supplier delivery times improved to the greatest extent on record. However, there was a silver lining in the form of optimism about the future, with firms expressing the highest level of confidence in output growth over the next 12 months. This positive sentiment was driven by firms' intent to invest in new product development and hopes for an upturn in client demand.

In contrast to the manufacturing sector, the US Services PMI displayed unexpected growth, reaching 55.1 in May, up from April's 53.6 and surpassing market expectations of 52.6. The service sector experienced its fastest rate of expansion in over a year, attributed to increased demand from both new and existing clients. Notably, new orders rose at the fastest pace since April 2022, and there was a solid growth in new export orders, ending a year-long period of decline. Additionally, the service sector recorded the highest rate of job creation in ten months. Price-wise, input prices and output charges increased at rates faster than their respective series averages. Looking ahead, the sector exhibited a strong level of confidence, reaching its highest point in a year, primarily fueled by expectations of sustained growth in client demand.

The US Composite PMI, which combines manufacturing and service sector data, registered a rise to 54.5 in May, up from the previous month's 53.4. This preliminary estimate indicates the fastest expansion rate in the country's private sector since April 2022. The acceleration was driven by the service sector's impressive growth, while manufacturing production increased only marginally. Despite a continuous decline in exports for the 12th consecutive month, total new orders experienced a three-month growth streak. Furthermore, employment levels rose at the fastest pace since July 2022. Input prices in the manufacturing sector declined for the first time in three years, while service providers continued to face rising cost burdens. Output charge inflation remained elevated, though still within historical standards. Looking ahead, business expectations for the coming year improved, reflecting hopes of a demand resurgence and plans for investment in new products and marketing.

The latest PMI data for May 2023 has presented a mixed picture of the US economy. While the manufacturing sector contracted due to weak demand and reduced inventory needs, the service sector exhibited robust growth, driven by increased demand and improved export orders. As a result, the US private sector experienced overall expansion, with the composite PMI reaching a 13-month high. Although concerns linger about the manufacturing sector's performance, particularly in terms of demand and inventory management, the optimistic outlook for future growth in both sectors provides hope for a sustained recovery. It will be crucial to monitor these trends closely as they unfold, as they can significantly impact the US economy and influence financial markets in the coming months.

On Tuesday afternoon, the United States stock market experienced a significant decline as concerns regarding the ongoing debt ceiling negotiations intensified. The Dow Jones Industrial Average witnessed a drop of over 200 points, while the S&P 500 and Nasdaq composite index both slid more than 1%. Despite a productive meeting between President Biden and House Speaker Kevin McCarthy on Monday, progress has been limited, and with the June 1st deadline fast approaching, the risk of default looms. In addition to the debt ceiling worries, the market reacted to various corporate developments and economic data.

Negotiations surrounding the debt ceiling took center stage in the financial markets, exerting significant pressure on stocks. While the meeting between President Biden and House Speaker McCarthy showed promise, no deal was reached. The lack of progress on Tuesday added to the concerns as the deadline draws closer. Failing to raise the debt ceiling would result in severe consequences for the economy, including the risk of default on existing debt obligations.

Amidst the debt ceiling uncertainty, fresh Purchasing Managers' Index (PMI) data provided a glimmer of positive news. The private sector in the United States demonstrated strong growth that surpassed forecasts, with the services sector leading the way. The better-than-expected PMI figures indicated resilience in the economy despite the ongoing challenges.

Several notable companies experienced significant stock movements due to corporate developments and earnings reports. Zoom, despite reporting an upbeat earnings per share (EPS) and providing guidance in line with expectations, witnessed a sharp decline of over 7%. A disappointing quarter for BJ's Wholesale led to a 7.2% drop for AutoZone, an auto retailer.

On the other hand, Lowe's, a home improvement retailer, saw its stock rise by 1.8% after beating earnings expectations. Chevron, the multinational energy corporation, experienced a notable surge of 2.6% following an upgrade by HSBC from "hold" to "buy" for the company's stocks. The positive sentiment surrounding Chevron contributed to the stock's upward momentum.

As the debt ceiling talks continue to dominate the market narrative, investors remain cautious about the potential consequences of a failure to raise the ceiling. The uncertainty surrounding this critical issue is likely to keep the markets volatile in the near term. Traders and investors will closely monitor any developments or signs of progress from lawmakers and government officials.

The United States stock market experienced a significant decline on Tuesday, primarily driven by concerns over the lack of progress in the debt ceiling negotiations. While positive economic data provided some respite, the prevailing uncertainty surrounding the debt ceiling continues to weigh on investor sentiment. The market also reacted to various corporate developments, with some stocks witnessing notable declines and others experiencing gains. As the June 1st deadline approaches, all eyes will remain on the progress of the debt ceiling talks and their potential impact on the financial markets.

1. Deeply divided in the U.S. bipartisan, and no deal yet.

2. The U.S. manufacturing PMI is back below the threshold of 50, and the services PMI highlights inflationary pressure.

3. OPEC+ may consider further production cuts.

4. BoE Governor Bailey: Getting closer to peak interest rates.

5. The chance of the Fed raising interest rates by 25bps in June is 28.1%.

U.S. President Joe Biden and representatives of Republicans concluded another round of debt-ceiling talks on Tuesday with no sign of progress, and the deadline to raise the government's $31.4 trillion borrowing limit to avoid default is looming. The two parties remain deeply divided about spending, with Democrats arguing that wealthy Americans and corporations should pay more taxes, while Republicans want to cut spending, according to the report. Michael Wilson, an equity strategist at Morgan Stanley, said the possibility of a U.S. debt default has not been digested by the market. Even if the two sides reach a deal, it could still have an impact on economic growth, he said.

The Markit manufacturing PMI prelim in the U.S. in May was 48.5, hitting a two-month low, and was back below 50. However, the Markit services PMI prelim in the U.S. was 55.1 in May, higher than the expected 52.6 and the previous 53.6, the highest level in nearly 13 months. Some analysts believe that the U.S. economic expansion gathered further momentum in May, but the divergence has become increasingly obvious. Although services companies are facing a post-pandemic surge in demand, especially in travel and leisure, manufacturers are struggling with excess inventory and a lack of new orders as spending shifts from goods to services.

Production cuts by some OPEC+ members will take effect this month. Saudi Energy Minister Abdulaziz bin Salman said this would make sellers and those who bet on prices would fall feel "pain", and told them to "be careful". Concerns over tightening supplies will be intensified later. OANDA analyst Craig Erlam said the comments could mean that OPEC+ will consider further production cuts at its meeting on June 4.

BoE Governor Bailey acknowledged that they have been acting slowly on inflation and promised that tighten monetary policy further will be needed if inflationary pressures prove more persistent. But he also said peak interest rates are getting closer.

According to CME "Fed Watch": The chance of the Fed maintaining interest rates unchanged in June is 71.9%, and raising interest rates by 25bps is 28.1%. The chance of maintaining interest rates at current levels by July is 57.7%, a cumulative 25bps hike is 36.8%, and a cumulative rate hike of 50bps is 5.6%.

UTC+8 10:00 The Reserve Bank of New Zealand Announces its Interest Rate Decision

UTC+8 11:00 Reserve Bank of New Zealand President Orr Holds a Monetary Policy Press Conference

UTC+8 14:00 U.K. CPI MoM (Apr)

UTC+8 16:00 German IFO Business Climate Index (May)

UTC+8 17:30 Speech by BoE Governor Bailey

UTC+8 21:00 Speech by BoE Governor Bailey

UTC+8 22:30 U.S. EIA Weekly Crude Oil Stocks

UTC+8 00:10 Fed Governor Waller Speaks on the Economic Outlook

UTC+8 02:00 The Fed Releases the Minutes of its Monetary Policy Meeting

You wouldn't know it from the perilous state of primary metal production on both sides of the Atlantic.

High energy costs, particularly in Europe, have caused multiple smelters to close or curtail output with the result that run-rates are the lowest this century.

Back in 2020 the World Bank identified aluminium as a "high-impact" and "cross-cutting" metal in all existing and potential green energy technologies.

Yet aluminium hasn't even made it onto the list of metals covered by the EU's Critical Raw Materials Act (CRMA), which will set targets for both domestic production and import dependency.

The United States has tried via import tariffs to support its domestic producers but with little lasting success.

Even the Inflation Reduction Act with its generous subsidies for domestically-sourced metal is unlikely to work without addressing aluminium's green energy paradox.

Western European primary aluminium production has been sliding since 2017 but Russia's invasion of Ukraine and the resulting spike in energy prices have accelerated the downtrend.

Output fell by 12.5% last year and has slipped further this year with the region's annualised production averaging 2.7 million tonnes in the first four months of 2023, according to the International Aluminium Institute (IAI). West European run-rates exceeded 4.5 million tonnes fifteen years ago.

U.S. primary metal production has been falling since 2019 with two out of seven domestic smelters fully curtailed and three operating at reduced capacity, according to the United States Geological Survey (USGS).

The USGS estimates domestic production was running at just 52% of capacity at the end of last year with import dependency growing to 54% from 41% in 2021.

The decline in Western production contrasts with the rise of China, which now accounts for around 58% of global production, the sort of dominance that has triggered major re-shoring efforts in other critical minerals such as lithium and rare earths.

While the U.S. market can lean on Canada for primary aluminium supply, Europe has traditionally relied on Russia, now a highly problematic long-term partner.

Even allowing for greater recycling, the world will need another 25 million tonnes of primary production capacity if it is to meet its emissions reduction goals, according to the IAI.

Aluminium is used directly in all new energy technology, particularly in solar power, where it accounts for 85% of photovoltaic (PV) components in the form of the frames that hold the PV panels together.

The metal's future demand profile is also tied to the accelerating roll-out of electric vehicles. Auto-makers are using more aluminium to light-weight their cars to get greater efficiency out of batteries.

The amount of aluminium used in European cars increased by 18% from 174kg in 2019 to 205kg in 2022, according to automotive consultancy Ducker Carlisle in a report commissioned by European Aluminium.

The report predicts this trend will continue, with the average aluminium content projected to increase from 205kg in 2022 to 237kg by 2026 and 256kg per vehicle by 2030.

The future should be bright for the West's beleaguered aluminium smelters, particularly as Europe and the United States channel government funding down green accelerator paths.

The problem, however, is that too much of that government largesse is going to aluminium's demand side and not enough to supply.

The Inflation Reduction Act, the CHIPS Act and the Infrastructure Investment and Jobs Act will channel $1.25 trillion to green energy sectors, according to U.S. think-tank SAFE's Center for Strategic Industrial Metals. ("Legislative Analysis for the U.S. Aluminum Industry", May 2023)

Since all green energy applications from solar to wind to electric vehicles use aluminium, the combined effect is to accelerate demand.

However, the amount of funding available to aluminium's supply side in the form of manufacturing credits and grants for domestic processing comes in at just $126 billion, according to SAFE. Moreover, investment is "contingent on decarbonization and funding is highly competitive," it notes.

Carbon is at the heart of aluminium's green energy paradox.

The metal is both a critical material for enabling economy-wide decarbonization but at the same is one of the highest emitting industrial metals, particularly those smelters powered by fossil fuels.

"By setting the decarbonization conditionality for supply-side support and simultaneously increasing demand across multiple sectors, the United States entraps itself in this cycle," SAFE contends.

In other words, simply providing funds for smelters to reduce their direct emissions won't solve the problem unless there is simultaneous investment in greening their power supply.

The carbon problem is compounded in Europe by the proposed Carbon Border Adjustment Mechanism (CBAM), which "will do more harm than good", according to Emanuele Manigrassi, European Aluminium's Senior Manager of Regulatory Affairs.

"We expect the CBAM to only increase the costs of production and consumption of aluminium in Europe, with no reduction in global emissions," Manigrassi wrote in a May 17 blog.

Energy, particularly green energy, holds the key to preserving a primary aluminium production base in both Europe and the United States.

U.S. policy in its current form "threatens to leave its own aluminium behind" by neglecting to recognise the metal's green power paradox, SAFE warns.

Both U.S. and European sectors need a more holistic approach from policy makers.

The EU could start by including aluminium in the CRMA.

Europe's primary aluminium sector is facing an existential crisis, according to Europe Aluminium's general secretary Paul Voss, speaking at a forum jointly hosted with Eurometaux last month.

"If the political signal is this material isn't very important, of course you could just let it go to the wall," he said.

But if Europe wants to stay in the business of making primary aluminium, "just put us on the damn list."

In a positive turn of events for the US economy, new home sales in the country witnessed an unexpected increase in April 2023. According to the latest data, sales of new single-family houses rose by a notable 4.1% compared to the previous month. This surge brought the seasonally adjusted annualized rate of sales to 683,000 units, marking the highest level since March of the previous year. The April figures also surpassed economists' predictions, which had estimated new home sales to reach 665,000 units.

However, it is important to note that the revised data for March 2023 showed a significant downward revision from the initial estimates. The initial figure of 683,000 new home sales was adjusted down to 656,000 units. While this revision slightly dampens the overall picture, the fact that April's sales exceeded expectations is still a positive development for the housing market.

Breaking down the regional sales performance, the South and the Midwest regions experienced substantial growth. Sales in the South surged by 17.8%, reaching 443,000 units, while the Midwest witnessed an 11.8% increase, with sales totaling 76,000 units. These robust numbers indicate a strong demand for new homes in these regions, likely driven by favorable economic conditions and attractive housing markets.

In contrast, the Northeast and the West regions faced challenges in April. New home sales in the Northeast plummeted by a staggering 58.6% to 24,000 units, which is a significant decline compared to the other regions. The West also experienced a decline of 9.1%, with sales totaling 140,000 units. These declines may be indicative of localized factors such as supply constraints, affordability issues, or shifting market dynamics in these regions.

Another crucial aspect of the housing market is the price of new homes. The median price of newly sold houses in April was $420,800, while the average sales price stood at $501,000. These figures represent a decrease compared to the prices recorded a year ago when the median price was $458,200, and the average sales price was $562,400. This decline in prices could be attributed to a variety of factors, such as increased inventory levels, changes in buyer preferences, or adjustments in the housing market dynamics.

Looking at the supply side of the market, the data reveals that there were approximately 433,000 houses left to sell in April. This inventory corresponds to an estimated 7.6 months of supply at the current sales rate. This figure indicates a healthy level of inventory that allows buyers to have options while also suggesting that the market is not excessively flooded with unsold homes.

The unexpected rise in new home sales in April is a positive sign for the US housing market, showcasing resilience and a potential rebound from previous setbacks. The strong performance in the South and Midwest regions indicates a robust demand for housing, driven by factors such as low mortgage rates, a strong job market, and a desire for homeownership. However, challenges remain in the Northeast and West, where sales experienced significant declines. It will be important to closely monitor these regional dynamics to understand the underlying causes and their potential impacts on the overall housing market.

As the market continues to evolve, factors such as housing affordability, inventory levels, mortgage rates, and economic conditions will play vital roles in shaping the future trajectory of the US housing market. While the unexpected rise in new home sales in April provides a ray of hope, sustained growth and stability will depend on the resolution of these complex factors and market resilience.

Sultan Al Jaber, the President of the upcoming United Nations Climate Change Conference (COP28) and CEO of the Abu Dhabi National Oil Company (ADNOC), finds himself at the center of a contentious debate. A coalition of lawmakers from both the United States Congress and the European Parliament has called for his ouster, arguing that his position represents a significant conflict of interest and sends the wrong signal to the world. However, Al Jaber defends his role, citing his extensive experience in both renewables and fossil fuels and his commitment to driving faster and more transformative results at COP28. With the United Arab Emirates (UAE) also pledging to become carbon neutral by 2050, the situation raises questions about the delicate balance between sustainability and the influence of fossil fuel companies in global climate talks.

Critics argue that Al Jaber's dual role as an oil industry executive and the head of COP28 creates an inherent conflict of interest. They contend that his appointment undermines the credibility and effectiveness of the conference, as it potentially allows the fossil fuel industry to exert undue influence on climate negotiations. The concern stems from the perception that an oil executive may prioritize the interests of the industry over the urgent need for decisive action to combat climate change.

A coalition of lawmakers, comprising members of the US Congress and the European Parliament, has voiced its opposition to Al Jaber's appointment. They argue that the COP presidency should be held by an individual without ties to the fossil fuel industry, ensuring an unbiased and transparent approach to climate negotiations. The coalition seeks to limit the influence of fossil fuel companies in shaping global climate policy, asserting that their interests often diverge from the goals of reducing greenhouse gas emissions and transitioning to clean energy sources.

Sultan Al Jaber, in his defense, emphasizes the unique perspective and experience he brings to the table. As CEO of ADNOC, he oversees one of the world's largest oil companies. However, he also highlights ADNOC's commitment to a low-carbon future and the significant investments the company has made in renewable energy projects. Al Jaber argues that his position allows him to bridge the gap between fossil fuels and renewables, facilitating a more pragmatic and inclusive approach to combating climate change. He claims that his leadership will drive faster and more transformative results at COP28, leveraging the resources and expertise of both sectors.

It is important to note that the UAE has made significant commitments to address climate change. The country has pledged to achieve carbon neutrality by 2050, signaling its intent to transition away from fossil fuels and embrace sustainable energy sources. This commitment aligns with global efforts to limit global warming to well below 2 degrees Celsius above pre-industrial levels, as outlined in the Paris Agreement. Al Jaber's role as the head of COP28 is seen by some as an opportunity for the UAE to demonstrate its commitment to these goals while leveraging its position as a major oil producer.

The appointment of Sultan Al Jaber as the President of COP28 has sparked controversy, with calls for his ouster based on a perceived conflict of interest. While critics argue that his position compromises the credibility of the conference, Al Jaber defends his role as a means to drive transformative change by bridging the gap between the fossil fuel industry and renewable energy sectors. As the UAE simultaneously commits to carbon neutrality by 2050, it remains to be seen how this delicate balance between sustainability and industry influence will unfold. Regardless of the outcome, the controversy highlights the need for transparent and inclusive decision-making processes in global climate negotiations to effectively address the urgent challenges posed by climate change.