Overnight Headlines

*USD turned lower in quiet trade yesterday

*US equity futures are mixed as market eyes data

*Brent crude through $70 as OPEC+ meet today, gold near five-month highs

US equities were closed yesterday for the Memorial Day holiday and Asian markets are mixed with the broad MSCI index ex-Japan edging higher. South Korea stocks were supported by data showing the country’s exports logged their sharpest expansion in 32 years. The MSCI Asia rose to the highest in a month, up nearly 7% year-to-date.

USD sold off yesterday in holiday liquidity and month-end selling of the dollar, with most crosses moving sideways. Low volatility has been a recent theme in FX markets with the market on the lookout for positive / negative macro surprises or unexpected changes to central bank rhetoric.

Market Thoughts – PMIs point to overheating manufacturing

We get PMI surveys released from across the globe today with the ISM number from the US in the afternoon giving us good outlook on industrial activity. The latter should bounce somewhat in May before potentially heading lower later this year, which is where the Asian surveys are pointing already, although they remain above the 50 threshold.

China’s Caixin PMI, which focuses on smaller firm, increased slightly but firms continue to struggle with increasing raw material costs, with the sub-index for input costs for example in Korea hitting a 13-year high. Ordinarily, we wouldn’t go into so much depth about the PMIs, but Asia is leading the world out of the pandemic so this is a lead indicator for the rest of the world. Exporters in China had also faced a decision on whether to cash in on the strong yuan versus the dollar or see if the dollar weakens further. But overnight, the PBoC hiked its reserve ratio for the first time in 14 years showing that they intend to manage the yuan’s path more forcibly going forward.

Chart of the Day – GBP/USD making fresh highs

After comments by an outgoing BoE dove helped GBP bulls last week, the bank’s deputy Governor has been on the wires this morning acknowledging the potential for more sustained inflation. He is also increasingly optimistic about the recovery, and these comments put the BoE firmly in the BoC (more) hawkish central bank camp.

The UK also had further evidence of the housing market regaining strength since the supportive measures in the March budget as Nationwide house prices rose 1.8% m/m in May after jumping 2.3% m/m in April –the annual increase is now up to 10.9%, the most since August 2014.

Although there are still question marks about the full reopening of the economy in June, cable has made new cycle highs beating the year-to date peak at the start of January at 1.4241. If the bulls can close above here, with the RSI now moving north above 60, then the April 2018 high at 1.4376 comes in view. Support lies at 1.4100/15.