A very light international agenda today

Market Movers

A very light international agenda today. We will keep an eye on Fed’s Mester (voter, hawkish) and Fed’s Williams (non-voter, neutral) who are both scheduled to speak today.
In the UK focus will be on the PMI release and whether or not the Brexit uncertainty has affected the outlook. Note though, that the weaker GBP should work in the other direction.
In Scandinavia attention turns to Danish FX reserve data and Swedish industrial production and order data, see Scandi Markets.

Selected Market News

This morning the Chinese Caixin PMI fell to 49.4 slightly below the consensus forecast at 49.8 and down from 49.7 in March. Readings below 50 signal deteriorating conditions. The non-official measure comes after the official PMI on Sunday painted a somewhat better picture for the Chinese economy. Nevertheless, it underlines that despite the ongoing stimuli from the Chinese authorities the Chinese economy is still struggling.

In the US session focus was on the ISM indicator that dropped to 50.8 in April from 51.8 in March. The lower headline number came on the back of the relatively steep decline in new orders to 55.8 from 58.3 in the previous month. Our US economists believe that ISM manufacturing will continue to stay subdued, only slightly above 50 in the coming months, but will recover in 3-6M ahead. Some of the weakness in the US manufacturing sector is the result of the sharp decline in oil investments on which manufacturing has become increasingly dependent. The fall in oil investments is a 'one off' that is now at a 16-year low and with oil now close to USD50 investments should stabilise. The weaker USD and stabilisation in China are also set to support US manufacturing.

The bond market took its lead from the IS ‘prices paid’ that increased sharply from 51.5 in March to 59.0 in April among other things reflecting the higher commodity prices. Remember, the measure was just 38.5 in February. 10Y Treasure yields rose some 5bp and the curve 2Y10Y steepened 3bp. Next important focal point for the US bond market is the labour market report on Friday.

In the FX market focus continues to be on USD/JPY that traded as low as 106.05 this morning. The JPY-support comes after BoJ did not ease monetary policy further last week but it also reflects general USD-weakness in the aftermath of the ISM indicator, as seen from EUR/USD at 1.1540 - the highest level since August 2015.

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