Equity market jitters amid weak PMIs and bond market concerns

European markets are following their Asian counterparts lower, with PMI data and bond market concerns building to bring the bears back into play. Yesterday’s Bloomberg outage might have forced a number of European treasury bond auctions to be extended, but the lack of demand for Japanese and US debt will have them wishing they could use the same excuse to allow them to drum up more demand for their products. With the Japanese and US bonds yields soaring amid weak demand, traders are growing increasingly concerned over the potential implications for US debt given the fact that the Japanese could start to reallocate away from US debt to further exacerbate the fiscal concerns highlighted by Moody’s on Friday. While the rise in bond yields has been a long-standing phenomenon, there is a feeling that we are going to see markets grow increasingly concerned if this lack of demand pushes borrowing costs ever higher.

This morning saw a raft of European PMI surveys, with the eurozone falling back into contraction in May. Concerningly, whilst the trade war has had an impact on the manufacturing sector, it was the usually reliable services sector which faltered to drive economic activity in the region lower. Worsening domestic demand provides a concerning development at a time where Trump’s anti-globalisation approach brought a need for nations to rely more heavily on home grown growth. On the flip-side, this morning has seen the German Ifo business sentiment survey post a welcome rise, highlighting how companies are perhaps taking the US tariffs in their stride. The May figure of 87.3 builds on recent gains and goes to show that many within Germany are feeling optimistic despite global manufacturing sector concerns.

In the UK, the services sector pushed back into expansion territory, reversing last months concerning slump into contraction. While the manufacturing sector remains an ongoing concern, with the 10% tariffs on US exports doing little to lift a sector that already struggled for momentum. Notably, this morning saw the latest net migration figures, with the 2024 figure of 431k coming in 50% below the 2023 number of 860k. This could have significant political implications and Starmer will undoubtedly highlight that efforts to bring down migration are working. However, from an economic perspective, it is clear that migration has been utilised as a driver of growth, and thus any significant decline in population growth could have implications for UK output going forward.