FXTRADING Economic Data Summary (Asia-Pacific | 05/27)

US Manufacturing Shows Marginal Recovery

Data released by the Dallas Fed showed that US manufacturing activity returned to expansion territory in May, with the general business activity index rising from -2.3 in April to 0.4. However, companies remained cautious about the future business environment. The company outlook index fell from 3 to 0.3, close to stagnation territory, while the outlook uncertainty index climbed further to 19.2, well above the long-term average of 16.9.

From an operational perspective, the raw materials price index surged to 42.7, the highest level in eight months. In contrast, the finished goods price index declined to 18.9, suggesting that companies are still unable to fully pass rising costs on to consumers. Labor market conditions changed little, with the employment index holding steady at 0.2, while the hours worked index dropped from 4 to 1.8. The wages and benefits index remained broadly stable around 18.9. FXTRADING believes that the US manufacturing sector is currently in a fragile recovery phase. The bigger concern for markets is that rising raw material and energy prices could once again squeeze corporate profit margins. If oil prices remain elevated, the pace of US inflation easing will likely continue to slow, making it difficult for the Federal Reserve to signal any clear policy easing in the near term.

Bank of Japan Maintains Hawkish Direction

Bank of Japan Deputy Governor Shinichi Uchida recently stated that the BoJ will continue pursuing policy normalization and gradually adjust its ultra-loose monetary policy in line with economic and inflation developments. This suggests that despite escalating tensions in the Middle East and rising global bond yields, the BoJ has no intention of returning to full-scale monetary easing.

However, Uchida also noted that rising oil prices, geopolitical instability, and recurring global inflation pressures could threaten Japan‘s already fragile economic recovery. As Japan remains highly dependent on imported energy, any further increase in global oil prices could quickly raise corporate costs and household financial burdens. At the same time, the BoJ has become more cautious in discussing future bond purchase reductions and adjustments to the pace of policy normalization. FXTRADING believes that while the BoJ still aims to move away from the long-standing ultra-low interest rate environment, Japan’s economic recovery foundation remains weak. If energy prices continue climbing, consumer and business confidence could deteriorate again.

ECB Rate Hike Expectations Increase

European Central Bank President Christine Lagarde recently stated that the ECBs previous forecast of 2.6% inflation for 2026 may need to be revised upward, as the economic environment has changed significantly in recent weeks. This indicates that ECB officials are becoming increasingly concerned that rising energy prices could make inflation pressures more persistent once again.

Although Lagarde did not directly confirm that the ECB will definitely raise rates in June, she repeatedly emphasized the need to reassess all incoming data before deciding whether further action is necessary. She also reiterated the ECBs commitment to its medium-term 2% inflation target, highlighting that policymakers remain primarily focused on preventing long-term inflation expectations from becoming entrenched. FXTRADING believes that while Eurozone economic growth is slowing, imported inflation risks driven by rising energy prices are heating up again. If oil prices remain elevated in the coming weeks, the probability of a further 25-basis-point rate hike by the ECB in June will rise significantly.

German Consumer Confidence Improves

Germanys latest GfK consumer confidence index showed that June sentiment improved from -33.1 to -29.8. The improvement was mainly driven by a sharp rebound in household income expectations, with the income outlook index surging from -24.4 to -13.5, marking the strongest improvement among all components. Meanwhile, economic expectations improved from -13.7 to -11.1, while willingness to spend edged up slightly to -13.2.

Although the willingness to save declined from 16.1 to 13.9, indicating that some households are beginning to reduce defensive savings, tensions in the Middle East, energy prices, and living cost pressures continue to weigh on consumer confidence. FXTRADING believes that German consumer confidence currently resembles a low-level rebound rather than a full recovery. If Eurozone inflation accelerates again in the future, German household purchasing power could once again come under pressure, while the broader European economic recovery is likely to remain sluggish.

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