On Friday, Asian stocks saw an increase and are set to mark the fourth consecutive month of gains. Meanwhile, the dollar remained stagnant, causing the yen to stay steady as investors anticipate inflation reports from both Europe and the U.S. These reports are likely to determine the direction of global interest rates. Additionally, data released on Thursday revealed a downward adjustment in consumer spending, resulting in slower-than-expected growth for the U.S. economy in the first quarter. This development put pressure on Treasury yields and the dollar. China’s PMI data for May came in lower than anticipated. The non-manufacturing index decreased from its April level, while the manufacturing index dropped below the 50 contraction threshold for the first time in four months. Meanwhile, US Federal Reserve policymakers indicated they are not in a hurry to reduce interest rates.Earlier this morning, the UK Lloyds Business Barometer revealed an eight-point increase in its headline index, suggesting that business confidence has reached its highest level in over eight years. This rise is attributed to firms being more optimistic about their own prospects and the broader economy. Employment expectations are the most positive since 2017, and price expectations have risen for the second consecutive month to a six-month high. Additionally, April’s UK money supply and lending data will be released this morning. These figures will be scrutinized for signs of overall credit demand strength, particularly any indications of increasing mortgage activity.Two significant international inflation reports are likely to be the market’s primary focus today. In the US, the PCE deflator, the Fed’s preferred inflation measure, has been showing a more favorable view of price pressures compared to the more timely CPI index. However, it is expected that the gap between the two narrowed in April. The CPI showed a slight decline in annual inflation to 3.4% from 3.5% in March. Conversely, both headline and core PCE inflation measures are anticipated to remain unchanged from March at 2.7% and 2.8%, respectively. This outcome will likely lead Fed policymakers to maintain that more evidence on inflation trends is needed before considering interest rate cuts.In the Eurozone, the downtrend in annual CPI inflation is expected to be temporarily disrupted in May, mainly due to energy prices. A smaller month-on-month decline in energy prices compared to the same month last year is likely to cause a slight increase in annual headline inflation to 2.6% from 2.4% in April. However, core inflation, excluding volatile energy and food components, is expected to remain at 2.7%, consistent with last month’s lowest level since early 2022. These results are not expected to alter predictions that the ECB will cut interest rates in June, but they may raise concerns that policymakers will issue a relatively hawkish statement regarding the possibility of further near-term rate reductions.Barclays’ model for month-end rebalancing flow has identified the potential risk of significant sales of USD. Deutsche Bank’s model is in agreement with many others in predicting a trend of selling USD. However, the Deutsche model also indicates a likelihood of positive flows for CAD and GBP. They note that May saw positive gains for equities, with the US equity market increasing by 4.5%. In contrast, Canada and UK equity gains were lower at 1.3% and 2.2% in USD terms. Their model takes into account cross-border holdings and liquidity when adjusting equity returns. It suggests that the most selling will be in USD/CAD, followed by an increased demand for GBP/USD.
Overnight Newswire Updates of Note
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 24/05/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 5270
EURUSD Bullish Above Bearish Below 1.0830
GBPUSD Bullish Above Bearish Below 1.2750
USDJPY Bullish Above Bearish Below 156
XAUUSD Bullish Above Bearish Below 2360
BTCUSD Bullish Above Bearish below 67000
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