Stocks rebound ahead of manufacturing PMI data – Daily Market Brief, June 1, 2022

European stocks are pointing to a firmer start after Wall Street closed up off session lows and ahead of a busy day for data.

·         German retail sales plunge -5.4% MoM in April, well below the 0% change forecast

·         Manufacturing PMIs are expected to show resilience despite surging prices & supply chain issues

·         BoC is expected to raise interest rates by 50 basis points but could surprise with a 75 bp hike.

European stocks closed broadly lower yesterday after the EU approved a ban on Russian oil imports and after inflation in the bloc surged to 8.1% YoY, a record high. The FTSE outperformed its peers, boosted by oil majors, which tracked oil prices higher.

In the US, after a weak start, indices picked up off session lows, helped higher by consumer discretionary stocks after data revealed that consumer confidence held up better than expected in May, falling to 106.4, ahead of the 103.8 forecast.

Wall Street closing off the session low, combined with stronger than forecast Chinese manufacturing PMI data and Australian GDP data, are helping Europe set off on the front foot. The DAX points to open 0.45% higher and the FTSE 0.3%.

German retail sales

The DAX is set to rise despite German retail sales tumbling in April. Sales fell -5.4% MoM, significantly below the -0.1% recorded in March and well below the 0% expected. The steep drop in sales come as prices surged. The data suggest that record-high inflation is prompting changes in consumer habits.

While the DAX rebounds, the EUR is coming under pressure following the weaker data.

Manufacturing PMIs

Manufacturing PMIs for Europe and the UK are expected to confirm the preliminary readings, marking a slight slowdown in activity to 54.4 (EZ) and 54.6 (UK) but remaining resilient above the 50 level, which separates expansion from contraction. The data comes amid concerns that surging inflation and supply chain issues could dampen confidence in the sector. Any steep downward revision could knock sentiment.

In the US session, there is plenty of data to provide further insight into the health of the US economy. As in Europe, the manufacturing PMI is expected to show a slight slowdown in growth to 54.5, down from 55.5.

Attention will also be on the JOLTS job openings ahead of tomorrow’s ADP private payroll report and Friday’s non-farm payroll. Job openings are expected to show that openings remain at a record high of over 11 million, highlighting tightness in the labour market.

Bank of Canada

At the April meeting, the BoC raised interest rates by 50 basis points, marking the largest rate hike in 22 years. With inflation still sitting at a 30-year high of 6.8% and unemployment falling to 5.2%, the central bank is widely expected to raise interest rates by a further 50 basis points today; This would take the benchmark lending rate to 1.5%. With the Fed set to raise rates by 50 basis points in June, there is a possibility that the BoC could contemplate a 75 basis point hike to keep ahead of the Fed.

USD/CAD fell to a 5-week low yesterday; a hawkish sounding BoC could send the pair lower still towards 1.26.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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