US DATA: Durable Orders Suggest Less Negative Momentum In Investment Than Feared
Durable goods orders were much stronger than expected in May across the board. The headline reading soared 16.4% M/M (SA), more than reversing April's 6.6% drop (rev from -6.6%) for the biggest monthly rise since July 2014 to a record-high seasonally-adjusted level, and well above the 8.5% increase expected.
- Usually the signal from this can be dismissed by the volatile aircraft category, which indeed saw an outsized rise (231% M/M after -52% - perhaps analysts hadn't fully accounted for the highest Boeing orders since December 2023).
- But ex-transportation orders were solid at 0.5% M/M (0.0% expected, 0.0% prior rev down 0.2pp), and crucially, core nondefense ex-aircraft orders also surprised to the upside: up 1.7% M/M (0.1% expected), more than reversing April's 1.4% drop (upward rev by 0.1pp).
- New orders were positive in every column, with notable continued strength in computers and electronic products (1.5% after 0.5%) and electrical equipment (0.8% after 0.4%), and at least partial rebounds in orders that were hit in April including motor vehicles and parts (+0.6% after -3.2%).
- Core capital goods shipments also surprisingly rose, by 0.5% M/M (-0.1% expected, 0.0% prior rev up 0.1pp).
- To be sure, these figures remain too volatile to extract a clear signal. And momentum indicators are mixed: core orders 3M/3M % annualized (effectively, quarterly annualized growth) have clearly lost steam since a peak of 9.2% in March amid what appeared to be significant pre-tariff front-loading of orders, coming in at just 0.7% in May, a 9-month low. This broadly corresponds with a renewed softening in other indicators of investment and manufacturing activity, including the ISM Manufacturing index.
- While "soft" data continue to suggest a downbeat outlook, another couple of months anywhere close to May's outturn would see a sharp incline in momentum. And core shipments' trajectory remains robust, with 4.5% 3M/3M SAAR growth showing little slowdown from the prior few months, albeit this will likely begin to moderate over the summer reflecting the lagged effect of softening orders in the prior months.
- On a Y/Y basis, May's core readings represented broad gains (3.9% Y/Y for orders, a 29-month high/ 2.2% for shipments, a 21-month high), indicating that the long contraction in business durables investment may be over.
- How much of this is a price effect is hard to say (these are nominal $ series), but for the moment the "hard" data continue to indicate that the sharp tariff-related drop-off in investment in Q2 that some had expected to materialize isn't clearly manifesting (yet).
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US-EU: Trump-EU Has Called To Set Up Trade Meetings
President Donald Trump posts on Truth Social, saying the EU is seeking meeting dates to discuss tariffs following his threats of a 50% levy and subsequent delay to 9 July. Trump's comments come in the wake of reports that EU member states have been pushing for an acceleration in talks. FT wrote on 26 May, "Several EU governments have signalled they want a quick deal with the US to head off Donald Trump’s threat of 50 per cent tariffs on the bloc, urging the European Commission to keep talking to Washington rather than taking the path of confrontation."
- Italian PM Giorgia Meloni is reported to have spoken with Trump directly before holding a call with Commission President Ursula von der Leyen, while other national leaders also spoke to VdL in the wake of Trump's 50% tariff threat.
- While Trump's actions may spur swifter action at the EU level, their aggressive nature risks pushing the EU to look towards China as a more reliable trading partner in the future. Bloomberg reports that "Top trade officials from the European Union and China are planning to meet again early next month, another sign that both sides are stepping up engagements as they try to push back against tariff pressure from Donald Trump." Chinese Commerce Minister Wang Wentao and European Trade Commissioner Maros Sefcovic will meet for the third time in 2025 on the sidelines of a WTO meeting in Paris in June.
US: Latest from Trump on Truth Social:
"Donald J. Trump @realDonaldTrump I was extremely satisfied with the 50% Tariff allotment on the European Union, especially since they were “slow walking (to put it mildly!), our negotiations with them. Remember, I am empowered to “SET A DEAL” for Trade into the United States if we are unable to make a deal, or are treated unfairly. I have just been informed that the E.U. has called to quickly establish meeting dates. This is a positive event, and I hope that they will, FINALLY, like my same demand to China, open up the European Nations for Trade with the United States of America. They will BOTH be very happy, and successful, if they do!!!"
PORTUGAL: Emigrant Vote Count Underway, Pres Wants New PM Appointed On 29 May
The vote count for Portuguese living abroad is underway, with the winners of the four seats assigned to the diaspora (two for those living in Europe, two for those living in the rest of the world) to be announced tomorrow (28 May). Speculation among observers in the aftermath of the 18 May legislative election is that the right-wing nationalist Chega ('Enough') will secure more seats from Portuguese abroad than the centre-left Socialist Party (PS), making Chega the second-largest party and the official opposition in the Assembly of the Republic for the first time.
- President Marcelo Rebelo de Sousa has said that he will meet with the leaders of the three largest parties, the centre-right Social Democrats (PSD), PS and Chega, on 29 May once the full count is completed, at 15:00, 16:00 and 17:00CET respectively. Speaking to reporters, the president said he would listen to the party leaders and, if he is in a position to do so, appoint a prime minister on the same day.
- Incumbent PM Luis Montenegro is expected to retain his position, having increased the seat total for the AD, the alliance in which his PSD sits.
- José Luís Carneiro, former Minister of Internal Administration and the only candidate standing for the PS leadership, could meet with the president on Thursday. It remains to be seen whether he maintains outgoing PS Secretary General Pedro Nunos Santos' opposition to the Montenegro gov'ts policy programme.
