A long-term slump in euro zone manufacturing may have turned around last month, a survey showed, improving business sentiment by showing new orders fell at the slowest pace in two years. HCOB’s final Eurozone Manufacturing Purchasing Managers’ Index (PMI) compiled by S&P Global rose to 47.3 in May from 45.7 in April, below the 50 mark, showing economic activity growing for the 23rd consecutive month. That was slightly lower than the initial estimate of 47.4.The index measuring output, which will be included in Wednesday’s composite PMI and is seen as a good gauge of the economy’s health, jumped to a 14-month high of 49.3 from 47.3 in April, although it was below an initial forecast of 49.6. This improvement may be at least partly due to a rebound in the new orders index, a measure of demand, from 44.1 to a two-year high of 47.3. Falling production costs are once again allowing factories to lower the prices they charge, which could give the European Central Bank room to cut interest rates on Thursday, a move widely expected as inflation eases.

 U.S. banking profits soared 79.5% to $64.2 billion in the first quarter of 2024, largely as big banks didn’t absorb billions of dollars in extraordinary charges to cover the costs of bank failures last spring. The FDIC said the profit increase was largely due to banks not being aware of the review, which led to lower bank profits at the end of 2023.Specifically, the FDIC said banks’ noninterest expenses fell by $22.5 billion in the first quarter, which was the main reason for the profit increase. The decline in special assessment fees accounted for more than half of these declining fees. Overall, the FDIC said asset quality measures remained generally good but noted deterioration in credit card and commercial real estate (CRE) portfolios. In particular, the FDIC said the illiquid rate on non-owner-occupied CRE loans is currently at 1.59%, the highest level since the fourth quarter of 2013, driven primarily by the office portfolios of large banks.The FDIC also said its “list of problem banks” expanded from 52 companies to 63 in the first quarter, with the banks’ total assets rising to $82.1 billion. Currently, 1.4% of banks are considered “problem banks,” a number the FDIC says is within the normal range. Bank deposits rose 1.1%, or $190.7 billion, for the second consecutive quarter. Uninsured deposits are expected to grow 0.9%, the first increase since late 2021.

  Bank of Japan Governor Kazuo Ueda said on Monday that the Bank of Japan would advance its inflation targeting framework cautiously, noting that some of the challenges facing Japan after years of ultra-loose monetary policy are “extraordinarily difficult.” In his opening speech at a central bank meeting hosted by the Bank of Japan in Tokyo, Ueda said Japan had “made progress in moving away from zero interest rates and raising inflation expectations.” He said that in order to achieve 2% inflation in a sustainable and stable manner, the Bank of Japan “will act cautiously like other central banks that set inflation target frameworks.” Accurately estimating the neutral rate is particularly challenging in Japan, Ueda noted, given the long period of short-term rates near zero over the past three decades.At the same meeting, Bank of Japan Deputy Governor Shinichi Uchida said Japan’s fight against persistent deflation was coming to an end, but acknowledged that anchoring inflation expectations at the 2% target was “a huge challenge.” Uchida said labor market conditions have undergone structural and irreversible changes that will help address the root causes of deflation such as excess labor supply.In March, the Bank of Japan made a landmark move to end the remnants of eight years of negative interest rates and other aggressive stimulus measures as it believes sustained achievement of its 2% inflation target is within reach. Ueda said the central bank intends to raise interest rates to a level that is neutral for the economy as long as economic growth and inflation are in line with its forecasts. The market expects the Bank of Japan to begin a full reduction in bond purchases soon, with Japan’s 10-year government bond yield rising to a 12-year high last week.  They also expect rates to rise by at least 0.20% by the end of the year.