Daily FX Update, 22 May 2015 OVERNIGHT MARKET UPDATE:

·         The US activity data again came in on the soft side, although data on the labour market remained strong. Data continued to indicate that the manufacturing sector is still struggling to regain upward momentum. The inventory overhang, drag from earlier USD appreciation and fall in oil related capex are weighing on activity. The preliminary May PMI eased to 53.8, from 54.1 in April while new orders also eased to 54.2 from 55.3. The Philadelphia Fed survey mirrored the PMI manufacturing data, moderating to 6.7 in May from April’s 7.5. While new orders rose, both the employment index and the prices paid index fell. Meanwhile, jobless claims rose a modest 10k to 274k but the four-week moving average, at 266k, fell to its lowest level in 15 years. April existing home sales fell 3.3% m/m, taking back some of March's revised 6.5% gain.      

·         The euro area aggregate PMI fell to 53.4 in May, from 53.9 (mkt: 53.9) as the German index dipped to 52.8, from 54.1. Both manufacturing and services in the euro area dipped.

·         In the currency market, GBP found support from solid pre-election retail spending in the UK. The USD was broadly unchanged despite weaker data, as was the EUR.          

·         US Treasuries rallied on the weaker data, with the 10-year yield finishing the session around 6 bps lower. 

·         Despite weaker data, movements in global equity markets were mild. The US indices were flat to up 0.4%.                        

·         Energy markets were stronger. Sentiment was buoyed by falling inventory and strong demand in the crude oil markets. The EIA report earlier in the week showed a strong decline in US oil products, suggesting end-user demand has been strong.          

Gold prices ended lower with investors continuing to mull over the FOMC minutes for its April meeting, amid a slew of disappointing economic data from the US and Europe.