Weak Chinese PMIs and 'steady' European PMIs were trumped by German IFO exuberance overnight ahead of US PMIs. Having tumbled to their lowest level since September, May preliminary US PMIs were mixed with Manufacturing slumping to 8-month lows and Services rebounding to 4-month highs.

The overall composite PMI rose modestly but the divergence between manufacturing and services is widening once again (and remember that has never ended well for services)

Measured overall, average cost burdens increased at a robust pace during May. This was driven by the steepest rise in service sector input prices since June 2015.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“Growth of US business activity gained a little momentum for a second successive month in May, but the upturn still looks somewhat underwhelming.

“Historical comparisons of the PMI against GDP indicates that the PMI is running at a level broadly consistent with the economy growing at a 0.4% quarterly rate (1.5% annualized). Actual second quarter GDP numbers are likely to be considerably stronger, in part reflecting seasonality in the official data and the weak first quarter.

“May saw an encouraging upturn in service sector growth to the fastest so far this year, buoyed by rising domestic demand. Manufacturers, on the other hand, reported the smallest rise in production since last September amid lacklustre export sales.

“There were mixed signals for the outlook. Optimism about the year ahead fell slightly, but hiring remained reassuringly solid, thanks to a stepup in service sector recruitment. The survey is indicative of non-farm payroll growth of approximately 160,000.

“Average prices charged for goods and services meanwhile showed one of the largest rises in the past two years. The strengthening of business activity growth and rise in prices will add to expectations of the Fed hiking interest rates again in June.”