Daily FX Update, 2 June 2015

·         The May US manufacturing ISM index was slightly better than expected at 52.8 – the first rise in seven months and providing some signs that the worst of the downturn in manufacturing may be over.   

·         US April construction spending rose 2.2% m/m, its highest monthly gain since May 2012 and its highest level since November 2008. The March data were revised to +0.5% m/m (-0.6%). 

·         US April personal spending (0.0% m/m) echoed the disappointing retail sales numbers a week ago. Personal income rose +0.4% m/m which pushed the savings rate up to 5.6% vs 5.2%. Core PCE inflation eased to 1.2% y/y vs 1.3% y/y in March. The number is largely being depressed by lower government healthcare payments. 

·         The euro area final manufacturing PMI was broadly in line with expectations coming in at 52.2 vs the preliminary estimate of 52.3. Spain and Italy posted decent gains, but the German reading disappointed.

·         In the currency markets, the USD is strengthening as US data continues to support the cause. AUD and NZD remain under pressure with the AUD threatening its lows. USD/EM is also trading strongly.              

·         US Treasury yields rose sharply overnight, with the 10-year yield up 6 bps to 2.18%. This appears to have been on the back of the better than expected ISM manufacturing and construction spending data, and came despite a softer core PCE result.    

·         Global equities were slightly stronger. Major US bourses were all up by around 0.2%, led by industrial and health care stocks.   

·         Energy markets were weaker. Investors remained cautious heading into the OPEC semi-annual meeting this Friday, with Brent coming under the most selling pressure. Expectations appear to be shifting from an unchanged strategy to an effective lift in production, as both Iran and Iraq posture about higher exports in 2015.              

Gold prices were flat on Monday as the dollar steadied on lackluster economic data from Europe and Asia.