US indices are off to another positive start to the week following through on a big rally in Asia Pacific markets. Traders reacted positively to a stronger manufacturing PMI report for China and a big improvement in Australia. In addition, news that the PBOC has cut reserve requirements (a stimulus move) for banks lending in rural areas and to small businesses was well received.
European indices are trading flat to moderately higher. Manufacturing reports across the continent were a bit disappointing overall. Traders appear to be focusing in the German inflation report instead where consumer price inflation came in below 1% and below expectations, stoking speculation that fear of deflation may increase pressure on the ECB to take decisive action on new stimulus at this Thursday’s meeting.
Currency markets have been relatively steady today with USD climbing moderately against gold and pretty much all of the paper majors except for USD/SEK and GBP/USD. AUD/USD is underperforming the group ahead of tonight’s RBA meeting suggesting some are anticipating a dovish shift in sentiment if not an actual rate cut.
USD like stocks appears to be moving up ahead of today’s manufacturing PMI reports which may give a key indication of where the US economy is heading. Last week’s downward GDP revision made it clear that last winter was a rough one, but because of this the stronger results for March and April may have been the catch up of pent up demand. May is a key month then for indicating if the acceleration in the US economy has carried through into the spring or if the rebound was a one-off event.
With US inflation rising, how fast the US economy is growing could impact how quickly after the end of tapering the Fed may need to start raising interest rates. A climbing USD suggests traders may be starting to think it could come sooner than currently generally expected.
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