Key overnight events:
- US ISM manufacturing posted a surprise gain from 50.8 to 51.3, beating the consensus median of 50.3. ISM prices paid, which measures raw materials costs, and ISM new orders both managed to beat estimates as well. The Fed’s Beige Book indicated a tightening labor market, as well as modest wage growth.
- The S&P 500 Index ended 0.1% higher spurred by positive ISM manufacturing data, and recovering from a loss of 0.6% earlier in the session. The index remains 1.8% below an all-time high set in May last year. Market participants are expected to adopt a cautious tone for the rest of the week due to OPEC’s meeting (Thursday), ECB’s policy decision (Thursday) and US nonfarm payrolls (Friday) all happening over the next two days.
- The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, declined 0.4%, paring back a 3.7% surge in May. The yen strengthened 1.4%, the most in a month, after Abe’s decision to delay a sales-tax increase increased speculation the BOJ will hold off on boosting stimulus.
- Crude oil futures expiring in July slipped 0.2% to $49.01/bbl, recovering from an earlier loss of 2.8% as OPEC ministers arrived in Vienna for talks.
- Spot 1.3763
- USDSGD remained steady around yesterday’s close of 1.3768, after 2 days of declines back below the 1.3800 handle.
- PMI in May, to be released tonight, is expected to have slid to 49.7 from 49.8 in April.
- Spot 0.7231
- Retail sales in April rose 0.2% month-on-month in April, less than the 0.3% rise expected. April’s trade deficit was less than expected, coming in at A$1.58 billion instead of the expected A$2.1 billion; exports rose 1% month-on-month while imports fell 1% over the same period.
- AUDUSD reversed gains following the data release, slipping back below its 200-day moving average of 0.7254.
- Spot 1.3075
- RBC Canadian manufacturing PMI in May slid slightly lower to 52.1 from 52.2.
- Moves in USDCAD remain limited as the currency pair continues to trade within its previous day’s range.
- Canada’s biggest banks forecast that more than twice as many of their energy loans will go bad, as they had expected a few months ago, after a recent rally in oil prices comes too late for some struggling companies to pay their obligations, Bloomberg reported.
- Spot 6.5844
- The PBOC strengthened its yuan reference rate for the first time this week as the US dollar weakened overnight. USDCNH slid 0.1% to a session low of 6.5825.
- Spot 8.2928
- Manufacturing PMI beat estimates, increasing from 48.6 the previous month to 51.1 in May; the median estimate was 48.5.
- USDNOK declined 0.6% to a session low of 8.2901; immediate support lies at 8.2407.
- In note to clients, Bank of America Merrill Lynch wrote that NOK is the most undervalued G-10 currency (by 15%) from a longer-term perspective. NOK’s strong performance this year is closely tied to an improving outlook on oil, and although the macro backdrop remains challenging, the worst should be over.