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Market Wrap
The ISM Manufacturing PMI for the US unexpectedly rose to 56.1 in May of 2022 from 55.4 in April, beating market forecasts of 54.5. New orders, production, and inventories grew at a faster rate while price pressures eased for a second month. More interestingly to me is that the New Orders Index also recorded a monthly advance, going up by 1.6 percentage points to reach 55.1%. Rising new orders means that there is economic expansion being priced into the economy in the coming months. Whether or not the ISM Manufacturing PMI is adjusted to meet the Philly Fed Manufacturing or vice versa doesn’t really matter if the optimism is being baked in now for more economic growth to come, which goes against the narrative of recessions and pessimism being pushed by the financial media.
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The response to the better-than-expected ISM Manufacturing PMI by the US dollar was very bullish. If the close today is above the daily 9-period moving average, I will be considering a long US dollar trade for the foreseeable future as I felt the market had been prepping for a further down move today and will be now off-side. This would explain the large bullish candle we see at the time of the writing.
The Fed wants to destroy demand to bring inflation under control and also sees a tight jobs market as being a potential inflationary pressure too. Today’s Jolts job openings data in the United States decreased slightly in April compared to March, which will be seen as a positive to the Fed.
Mary Daly, president, and CEO of the Federal Reserve Bank of San Francisco, today that a neutral monetary policy stance would mean that the key interest rate is at 2.5% by the end of 2022. The current Effective Federal Funds Rate is currently below 1%, while the US 10-year yields jumped higher today to touch 2.940%.
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The rising benchmark yield once again lifted the USDJPY which has now unwound 3 weeks’ worth of corrective price structure in 3 days. The weaker yen is suffering a perfect storm currently, as the BoJ keep to an ultra-loose monetary policy, as the Fed go for a continued rate hike cycle. Added to this is the drag on the yen through the rising cost of energy, though official selling prices from the middle east to the far east have been dropping recently. The rising USDJPY has also helped push the AUDJPY yen trade we’re in higher, after the Australian GDP data lifted the Aussie during the overnight session.
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From the opening bell of the US index futures at 2.30pm the benchmark S&P500 dropped and brought down the global indices with it. I have been anticipating a correction as we need to know where the next level of support is and to print a higher low before we can really get excited about a new uptrend commencing for real. Many on Twitter are calling this the end of a bear market rally, so we must consider the possibility that this is true too. In a couple of days’ time, we receive the NFP data which could be the catalyst needed to lift the markets, though that could also fall to the next FOMC meeting, where the bulls will be looking for a rate hike slow down. JPMorgan Chase & Co. Chairman and CEO Jamie Dimon has claimed today that a “hurricane” is “down the road” for the United States economy. Just as his company receives a windfall of higher interest rates and the Fed starting to unwind the QE with their tightening programme. With the removal of bank reserves off the balance sheet, the banks will be able to lend more and at a higher interest rate.
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The EURUSD dropped heavily into the London close even after the EU unemployment rate at 6.8% came in as expected and ECBs Lane said it is robust to make the initial steps of normalisation and EU ambassadors debated the Russian sanctions.
