US Manufacturing Activity Continues to Shrink, May Manufacturing Purchasing Managers’ Index (PMI) Drops to 48.7, Marking the Second Consecutive Month of Decline. Weak Data Brings Hope for a Fed Rate Cut in September, Leading to a Significant Drop in US Bond Yields, While US Stocks See Mixed Performance on Wednesday, with NVIDIA Stock Reaching a New Historical High.
(Background:
Fed Beige Book: Moderate Inflation Growth and Gloomy Economic Outlook; Fed Officials Call for a Rate Cut in Q4)
The Institute for Supply Management (ISM) in the US released data on the 3rd, showing that the May Manufacturing Purchasing Managers’ Index (PMI) fell to 48.7, lower than economists’ expectation of 49.8, and also lower than April’s 49.2. This marks the second consecutive month of decline and falls below the 50 threshold, reaching a new low in the past three months, highlighting a further contraction in US manufacturing activity.
In addition, the US Census Bureau of the Department of Commerce released data on the same day, showing that US construction spending decreased by 0.1% in April, following a 0.2% decline in March, and far below the market expectation of 0.2% growth. This is the second consecutive month of unexpected decline.
Increased Probability of Rate Cut in September
According to Reuters, the US GDP only grew by 1.3% in the first quarter. The latest ISM Manufacturing Index and construction spending indicate that the US economy remains weak in the second quarter. The GDP Now model of the Federal Reserve Bank of Atlanta had previously estimated in May that the second-quarter GDP growth rate would be much higher than 2%. However, after the release of the latest ISM Manufacturing Index and construction spending data, it has been revised down to only 1.8%.
As the Fed continues to combat high inflation and keeps interest rates high, expenditures on manufactured products and capital projects have remained weak. Data released last week showed a decline in consumer goods spending in April. The softness of various data has increased market expectations of a rate cut by the Federal Reserve in September.
After the release of the ISM data, the FedWatch data shows a 51.3% probability of the Fed lowering the benchmark interest rate from the 5.25% to 5.50% range to the 5.0% to 5.25% range in September, while the probability of keeping the interest rate unchanged in the 5.25% to 5.50% range is 40.1%.
US Stocks Show Mixed Performance
Due to the poor performance of US manufacturing data, market expectations for a rate cut by the Federal Reserve within this year have been strengthened. This has pushed up US bond prices further, with bond yields experiencing a significant drop on Wednesday. The 10-year US Treasury yield fell as much as 12.6 basis points to 4.391%, reaching a new three-week low.
US stocks opened higher on the 3rd but subsequently turned lower. The closing prices showed minor changes:
– The Dow Jones Industrial Average fell 115.29 points or 0.30% to close at 38,571.03.
– The S&P 500 index rose slightly by 5.89 points or 0.11% to close at 5,283.40.
– The Nasdaq index rose 93.65 points or 0.56% to close at 16,828.67.
– The Philadelphia Semiconductor Index rose 29.16 points or 0.57% to close at 5,152.51.
Regarding individual stocks, NVIDIA CEO Jensen Huang announced during a speech at National Taiwan University Sports Center that the next-generation architecture platform, Rubin, will begin mass production in the fourth quarter of 2025 and be launched in 2026. It is rumored to adopt TSMC’s 3-nanometer process. Encouraged by this news, NVIDIA’s stock price rose by 4.89% on Monday, reaching a new historical high at $1,150.00, and the market value exceeded $280 billion.
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