Daily Market Outlook, June 1, 2022

Overnight Headlines

  • Fed’s Bostic Says Didn’t Suggest ‘Fed Put’ With Previous Comments
  • Asia's Factory Activity Slows In May As China Covid Curbs Weigh
  • China Factory Activity Falls At Slower Pace As Covid Curbs Ease
  • Australia’s Solid Economic Momentum Suggests Faster Rate Hikes
  • BoJ Deputy Governor Wakatabe Shows Continued Easing Bias
  • Japan Mfg Conditions Improve At Softest Pace For Three Months
  • Japan’s Businesses Kept Spending Despite Omicron Contraction
  • Korea’s Exports Accelerate, Suggesting Resilient Global Demand
  • Slump In Yuan’s Forward Points Signals Bets For China Easing
  • Bank Of England To Take Rescue Role If Stablecoin Collapses
  • Treasuries Slide As Inflation Concerns Keep Rate-Hike Bets Alive
  • OPEC Weighs Suspending Russia From Oil-Production Deal
  • Global Equities Kick-Start New Month With Indecisive Mood
  • FAA To Keep Tight Watch On Boeing Employees Who Represent Regulators
  • HP Sales, Earnings Beat Estimates Despite ‘Volatile Macro Environment’
  • Salesforce Beats Quarterly Rev Ests On Strong Demand For Software

The Day Ahead

  • Asian equity markets are mixed this morning following falls in Europe and the US yesterday. Oil prices have fallen back sharply from Tuesday’s high after reports suggesting that OPEC members will boost production. After a meeting between US President Biden and Federal Reserve head Powell, a White House spokesperson said that they expect progress on lower inflation but the process “may not be linear”. Australian Q1 GDP growth slowed to 0.8% from 3.6% in Q4 2021 reflecting the impacts of floods on the East coast and Omicron.
  • Today’s European data calendar is dominated by manufacturing PMI releases for May. However, most of them are second readings that are not expected to be revised significantly from the original estimates. Those showed larger than expected falls in the headline indices for both the UK and the Eurozone as a whole from their April levels. For the UK, it was reported that supply constraints were still widespread thanks in part to new lockdowns in China. However, new orders have also now almost stalled, possibly signalling a weakening in demand. Similar pressures were also apparent in the Eurozone.
  • In the US, the May ISM manufacturing survey results will be new. The April headline measure fell to its lowest since mid-2020 reflecting ongoing concerns about supply but also signs that demand is weakening as orders slipped to their lowest since the early stages of the pandemic. More positively, the readings are still firmly in growth territory. Expect a further small decline for May.
  • The Bank of Canada is expected to raise interest rates at today’s policy update by 50 basis points for the second successive time. That would be the third hike this year from a low of 0.25%, taking its policy rate to 1.50%. It is also expected to follow this up with another 50bp increase in July and further moves before year end. However, despite these actions, the BoC is coming under political fire at home over its inflation-fighting credibility.
  • While UK markets are closed for the rest of the week, those elsewhere are open. Possibly the most significant economic release is likely to be Friday’s US labour market report which, as always, will be seen as a key bellwether of conditions. Look for another solid rise in nonfarm payrolls of 400k in May and for the unemployment rate to fall back to its pre-pandemic level of 3.5%. Also look for average earnings growth to edge down for a second month to 5.4%. There are some suggestions that wage growth may have peaked, although we would caution that the labour market remains tight.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0600 (380M), 1.0640-50 (1.0BLN), 1.0700 (354M)
  • 1.0740-50 (1.26BLN), 1.0760 (848M), 1.0770-75 (1.18BLN)
  • 1.0790-00 (1.0BLN). EUR/CHF: 1.0150 (255M)
  • USD/JPY: 127.25 (230M), 127.50-55 (1.27BLN), 128.00 (235M)
  • AUD/USD: 0.7170-75 (1.29BLN), 0.7190 (272M)
  • NZD/USD: 0.6460-65 (493M), 0.6620 (725M)
  • AUD/NZD: 1.0760-70 (1.87BLN)
  • USD/CAD: 1.2465 (600M), 1.2650-60 (755M), 1.2700 (751M)
  • USD/ZAR: 15.5700 (500M), 15.6400 (730M)
  • EUR/SEK 10.4600 (717M), 10.4900 (1.08BLN), 10.5600 (729M)
  • EUR/NOK: 10.20 (626M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD opened -0.45% at 1.0734 after USD broadly firmed into month-end
  • After trading 1.1737 it moved lower when USD/JPY popped higher into the fix
  • EUR/USD traded to 1.0709 before settling around 1.0720 late morning
  • Sentiment is mixed after key resistance at 1.0787 held on Monday
  • Repeated fails ahead of 1.0790 may discourage EUR/USD longs
  • EUR/USD VWAP has turned bullish

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • Off 0.05% in a tight 1.2590-1.2616 range with light interest on D3
  • Inflation pressures, slowing growth
  • Difficult scenario for the BoE to avoid a recession own the line
  • Long Jubilee weekend will likely see risk appetite and USD drive sterling
  • Techs; momentum studies conflict, 5, 10 & 21 day moving averages climb
  • VWAP bands expand - charts suggest the top is the weak side
  • Friday's 1.2666 May high then 1.2727 50% of 2022 fall first resistance
  • Daily VWAP has turned bullish

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY as high as 129.29 EBS in Asia PM trading, early low 128.65
  • Pair shows no signs of any meaningful push-back, demand strong, on-going
  • Japanese importers, some investors good buyers early, specs join later
  • Recent short likely being forced to cover, bank recommendations to go long
  • Firmer US yields supportive, Treasury 10s @2.862%, high o/n 2.884%
  • BoJ easy policy stance too, reiterated by DepGov today
  • Tokyo risk on, JPY crosses mostly up legs, Nikkei +0.65% @27,457
  • Daily VWAP is bullish

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened -0.25% at 0.7178 after whippy US session
  • It moved up to 0.7195 early when Tokyo bought AUD/JPY for the fix
  • The better than expected Q1 Aus GDP didn't have any impact of note
  • AUD/USD traded to 0.7172 before settling around 0.7185 into the afternoon
  • Sellers around 0.7200 cap - with resistance at 0.7230
  • Support has formed around 0.7150 with more at 0.7122
  • A break below 0.7120 eases upward pressure and put trend higher in doubt
  • Daily VWAP has turned bullish but not positively oriented