Asian Manufacturing Disappoints Slightly

Fundamental analysis of Forex market

Market movers today

  • Key market movers this week will be US non-farm payrolls, ISM manufacturing, and euro Flash CPI, see Weekly Focus, 28 May, for more.
  • Talks on a US infrastructure bill are also set to continue this week. Speeches from Fed members could also be interesting after the high core PCE inflation print on Friday, which added to the picture of upside risks to inflation.
  • Overnight we get China PMI manufacturing from Caixin, which we expect to rebound on the back of strong exports.

The 60 second overview

China: Official Chinese manufacturing PMI declined to 51.0 in May from 51.1 in April as new export orders declined below 50. Consensus was for a slight increase. An index for raw material costs stood at 72.8, hitting the highest level since 2010. Service PMI increased to 55.2 from 54.9.

Japan: Industrial production increased 2.5% mom in April disappointing expectations of 4.1%. Also March was revised downwards. The economic recovery in Japan is highly dependent on the manufacturing sector, as a big part of the country remains in a state of emergency hampering the service industry.

Inflation: On Friday, US core PCE came in slightly higher than expected at 0.7% m/m. Y/Y stands at 3.1%, which is very high relative to the Fed goal of 2%. However, core PCE tends to also be correlated with headline due to some service components that are affected by energy (such as transport). So it should come down again (in line with Fed expectations). On the margin though, it adds to the picture of upside risks to inflation.

FI: Schnabel’s interview on Friday weighed on EGBs from the morning, yet after bond markets digested the views the sell-off sentiment changed to a continuous rally through the remainder of the day leaving Bunds, 1bp lower than Thursday’s close, at -0.18%. Spreads were slightly tighter.

FX: EUR/USD remains largely unchanged at 1.22. Also EUR/GBP moved sideways on Friday. EUR/SEK ended last week close to the lower end of the 10.10-10.20 range.

Credit had a decent session on Friday where Xover tightened 3bp (to 246½bp) and Main ½bp (to 50bp). HY tightened 1bp and IG around ½bp.

Nordic macro and markets

In Sweden, Riksbank governor Ingves is set to speak on an online event, where he will discuss the central bank’s three main areas: payments, monetary policy, and financial stability, and how the Riksbank meets the new challenges arising from globalisation and technical development.