PMI at a three-month low
China’s manufacturing PMI fell to 49.4 in May, the lowest reading since February and below economists’ estimates of 49.9. This marks the fourth month in six that the reading has been below the 50 contraction/expansion threshold, with the new orders sub-index falling deeper into contraction territory while the new exports sub-index slumped dramatically from 51.4 in April to 49.8.
The response in the currency markets saw AUD/USD rebounding from intra-day lows before the release and is now at 0.6912, almost flat on the day. The FX pair currently appears to lack the momentum to break above the 23.6% Fibonacci retracement of the April-May drop at 0.6945.
AUD/USD Daily Chart
Source: OANDA fxTrade
Trump’s tariff target swings to Mexico
U.S. President Trump announced addition tariffs of 5% on all imports from Mexico, effective June 10. He added that the tariff rate would increase steadily from July 1 and could reach as high as 25% until the flow of illegal immigrants into the U.S. stops.
Markets reacted negatively to the developments (even though it was not against China), with the US30 index down 0.69%, and the NAS100 index down 0.74%. China shares bucked the global trend with a 0.18% bounce after yesterday’s sell-off. The China50 index is holding above the 100-day moving average at 12,565, as it has done on a closing basis since Jan. 23.
China A50 Daily Chart
Source: OANDA fxTrade
German CPI seen easing
Germany’s data slate today includes retail sales for April, which are expected to rebound to +0.1% after a 0.2% decline in March, and May’s consumer price index, which is expected to ease off to +1.6%y/y from +2.0% last month. The UK’s Nationwide house prices for April and mortgage data for the same month complete the European session.
The U.S. session features personal income and spending data for April along with the prices index in personal consumption expenditures. That’s seen holding steady at +1.5% y/y, though a weaker reading could prompt more speculation that the Fed might consider a shift to an easing bias. Yesterday Fed Vice Chairman Clarida commented that inflation expectations currently sit at the low end of the range consistent with Fed policy, though the Fed still views this weakness as transitory.