Market Drivers May 23, 2016
- EZ Flash PMI hit 16 month lows
- Treasury Report suggests 500K job loss off Brexit
- Nikkei -0.49% Dax 0.05%
- Oil $48/bbl
- Gold $1251/oz.
Europe and Asia
EUR: EZ Flash PMI 52.9 vs. 53.2
North America
USD: PMI Manufacturing 9:45
The dollar was weaker at the start of week's trade giving up the 110.00 figure against the yen, but euro was pressured as well in the wake of disappointing EZ flash PMI data that showed economic activity in the continent slowing in May.
EZ composite flash PMI reading hit a 16 month low printing at 52.9 versus 53.2 eyed, although German PMI readings held up relatively well with manufacturing improving slightly to 52.4 versus 52.0 forecast and services rising to 55.2 from 54.6 anticipated.
Still the overall data shows that new business orders have slowed to a 15 month low and given the deceleration in growth over the past two months EZ Q2 GDP is likely to slow from Q1 readings making for a sluggish growth environment in the Eurozone for the foreseeable future.
The euro fell towards the 1.1200 figure but held its ground at that level although the unit was also pressured by M&A flows in the wake of Bayer's 60 Billion USD bid for Monsanto (NYSE:MON). The pair continues to consolidate at recent lows but shorts could press it lower in North American session especially if we get some some hawkish rhetoric from Fed officials.
Elsewhere, Her Majesty's Treasury service came out with an estimate of possible repercussions of Brexit, suggesting that job loss could exceed 500K jobs and could send the sterling index 12-15% lower as jobs in finance sector would suffer the most. Cable which popped as high as 1.4548 in early London trade sold off all the way below 1.4500 in the aftermath of the report, although some analysts stated that the overall assessment of the HMT really just came down to a mild recession.
Although it's difficult to tell from the polls, the 'Leave' vote appears to have gained more sentiment as constant scaremongering from the government and UK allies may be having the opposite effect on the UK voting public. Still, both the markets and the bookies remain confident that the 'Remain' side will prevail, but given the uncertainty surrounding the vote, cable may see far more volatility than present conditions suggest.
In North America the calendar is light with only PMI Manufacturing on docket projected at 51.0 versus 50.8. Even the slightest upside reading could provide the buck with a boost as it would add to expectations that Fed may hike rates June. So far FOMC speakers have been generally uniform in communicating their desire to normalize rates further at the next meeting and that should provide support for the buck for the near term.