Market Drivers for May 1, 2013
UK PMI better within whisker of 50 helps fuel risk rally
AUD/USD lags after weak PMI and CNY data
Nikkei Europe closed
Oil $93/bbl
Gold $1472/oz.

Europe and Asia:
AUD AiG PMI 36.7 vs. 44.4
AUD HIA New Home Sales 4.2% vs. 5.3%
JPY Labor Cash Earnings -0.6% vs. -1.0%
GBP PMI Manufacturing 49.8 vs. 48.6

North America:
USD ADP Employment Change 6:15
USD Construction Spending 8:00
USD ISM Manufacturing 8:00
USD ISM Prices Paid 8:00
USD Fed Reserve FOMC Meeting 12:00
USD FOMC Rate Decision 12:00

Its been a relatively calm overnight session in the currency market with most of EU bourses closed for May Day holiday. With only UK open for dealing, the surprisingly strong UK PMI Manufacturing number helped boost risk flows in thin trade pushing cable towards the 1.5600 barrier while EUR/USD inched its way towards 1.3200 figure.

UK PMI Manufacturing printed at 49.8 versus 48.6 eyed. This was still below the key 50 boom/bust line but was a marked from period prior and the third consecutive monthly improvement in row suggesting that the Manufacturing sector is beginning to come out of its doldrums.

According to Markit/CIPS press release,”Manufacturers benefited from a modest improvement in new export order inflows, which companies attributed to increased sales to clients in North America, the Middle East, Latin America and Australia. The level of new export work received rose for the first time in over a year and at the fastest pace since July 2011. However, demand from the euro area remained lacklustre.”

The news helped to lift cable decisively through the 1.5550 area and the pair was eyeing a run on the key 1.5600 in mid morning London dealing. The recent spate of better than expected UK economic data has alleviated concerns that the country is headed towards a triple dip recession generating much more positive sentiment towards cable as the pair gained nearly 600 since the start of last month.

While cable has been the star of the show in overnight trade, Aussie has lagged the rest of the pairs today as weaker AIG Manufacturing PMI which printed at 36.7 versus 44.4 raised fears that growth in Asia is slowing. Those concerns were exacerbated by weaker Chinese PMI numbers which came is slightly below consensus at 50.6 versus 50.8 expected. Chinese exports are clearly being hurt by lack of demand from Europe as well as renewed competition from US and Japan and if growth slows further it will no doubt reverberate through Australia. One key evidence if investor concern has been the steady decline in AUD/CAD as markets make a bet that North America will outperfrom Asia.

With no further data out of Europe trading is likely to be lackluster until North American trade when markets will get a glimpse of the ADP number as well as the latest Fed statement. The ADP number along with ISM Manufacturing reading due at 10 could be key to today’s FX session. With US data showing significant slowdown in activity due if both reports miss badly the dollar decline could accelerate as traders speculate that the Fed remains extraordinarily accomodative fo the foreseeable future. If US numbers weaken both euro and cable will likely run the 1.3200 and the 1.5600 level respectively as the day proceeds.

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