Market Drivers for May 1 2014

Many Asian and European markets closed for May day holiday

GNY PMI generally in line UK PMI beats handsomely

Nikkei 1.27% Europe 0.00%

Oil $98/bbl

Gold $1286/oz.

Europe and Asia:

AUD AIG Manufacturing 44.8 vs. 47.9

CNY PMI 50.4 vs. 50.5

GBP UK PMI Manufacturing 57.3 vs.55.4

GBP UK Mortgage Approvals 67K vs. 71K

North America:

USD Unemployment claims 8:30 AM

USD PS/PI 08:30 AM

USD ISM Manufacturing PMI 10:00 AM

Parts of Asia and much of Europe were closed for May Day holiday leading to generally quiet dealing as traders awaited the open of North America to see in increase in liquidity. The dollar however was generally lower across the board as yesterday’s FOMC meeting appeared to confirm that despite improving economic fundamentals, US rates were likely to remain low for a considerable period of time.

In Asia the release of official Chinese PMI report came in essentially as forecast at 50.4 versus 50.5 eyed. There was some concern ahead of the event that activity may have fallen below the 50 boom/bust line and when those fears were allayed Aussie rallied in relief running through the 9300 barrier.

Despite the move higher Aussie remains contained by the 9300 level as investors continue to be concerned about the spillover effects of Chinese manufacturing slowdown. Even in today’s generally upbeat Chinese PMI report, the underlying data showed that both exports and imports contracted pointing to possible further weakness in demand ahead.

The data from UK however was unambiguously strong. UK PMI Manufacturing rose to 57.3 from 55.4, posting its best read in more than 5 months. The UK economy continues to shine in the G-7 universe and if the services PMI data due next Tuesday also produces an upside surprise then cable is likely to clear the 1.7000 level within a week as speculation builds that BoE will be the first G-7 central bank to raise rates since the start of the 2008 credit crisis.

For now sterling must overcome resistance around the 1,6950 level which could prove difficult ahead of the US NFPs due tomorrow. A strong NFP reading could provide the greenback with a boost, but unless the market sees a blowout number near the 300K mark, currency traders are likely to believe that the Fed will maintain its neutral posture for a considerable amount of time.

Meanwhile the focus in today’s trade will be on the ISM Manufacturing number which is expected to print at 54.3 versus 53.7 the month prior. Yesterday’s sharp rise in Chicago PMI gave hope to dollar bulls that the snapback in US growth is here after a very challenging weather ridden Q1. If today’s ISM data confirms the Chicago numbers the snapback thesis wil gain greater credibility and could help USD/JPY rally towards the 102.50 level. If on the other hand it misses or worse, prints below last month’s number, the pair could slide below the 102.00 figure as traders further reduce their expectations of any US rate hikes in the foreseeable future.

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