Manufacturing PMI Shows Modest Growth, Misses Forecasted Figure

Economic

Forex

Summary:

In recent economic news, the Manufacturing Purchasing Managers’ Index (PMI) has shown a positive trend in the manufacturing...

In recent economic news, the Manufacturing Purchasing Managers’ Index (PMI) has shown a positive trend in the manufacturing sector, but still missed the forecasted figures. The actual PMI figure came in at 52.0, slightly below the anticipated figure of 52.3.

The Manufacturing PMI is a critical indicator of the activity level of purchasing managers in the manufacturing sector. A reading above 50 signifies expansion in the sector, while a figure below 50 indicates contraction. This index is a crucial metric for traders and market watchers because purchasing managers typically have early access to data about their company’s performance, which can act as a leading indicator of overall economic performance.

The actual PMI reading of 52.0, although lower than the forecasted 52.3, still indicates a growth in the manufacturing sector. This figure is a significant improvement from the previous PMI figure of 50.2, showing a steady rise in the manufacturing sector’s activity. The increase from the previous number suggests that the manufacturing sector is expanding at a faster pace.

However, the fact that the actual PMI missed the forecasted figure might be seen as a negative signal for the USD. Traders often interpret a lower than expected reading as bearish for the US dollar. Despite this, the actual PMI reading still shows an expansion in the manufacturing sector, which might mitigate any potential negative impact.

The Manufacturing PMI is of high importance in the economic calendar, with a rating of three stars. Its figures are closely watched by traders and economists as it can provide early indications of the overall economic performance. Despite falling short of the forecast, the steady growth indicated by the actual PMI figure could signal a positive trend in the manufacturing sector, contributing to the broader economic recovery.

Source: Investing

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Morgan Stanley said the greenback will tumble to levels last seen during the Covid-19 pandemic by the middle of next year, while JPMorgan Chase & Co. remains bearish on the US currency. Goldman Sachs Group Inc. said Washington’s efforts to explore alternative revenue sources — should tariffs be impeded — may be even more negative for the dollar.

The dollar fell against all its Group-of-10 peers on Monday amid a flare-up in global trade tensions. The Bloomberg Dollar Spot Index dropped 0.5%, extending its decline since the start of April and nearing its weakest level since July 2023.

“We think rates and currency markets have embarked on sizeable trends that will be sustained — taking the US dollar much lower and yield curves much steeper — after two years of swing trading within wide ranges,” Morgan Stanley strategists including Matthew Hornbach wrote in a May 31 note.

The bank forecasts the US Dollar Index will fall about 9% to hit 91 by around this time next year.

Trump’s trade policies have dented sentiment on US assets and triggered a re-think on the world’s reliance on the greenback. Still, the bearishness is far from historical extremes, underscoring the potential for more dollar weakness ahead, Commodity Futures Trading Commission data showed.

JPMorgan strategists led by Meera Chandan reinforced their negative view for the dollar last week, instead recommending bets on the yen, euro and Australian dollar. Morgan Stanley also listed the euro and the yen among the biggest winners from the greenback’s slide, along with the Swiss franc.

The euro climbed to a more than five-week high at $1.1437 on Monday and Morgan Stanley sees it rising to around $1.25 next year. The bank also said the pound may advance from $1.35 to $1.45, aided by “high carry” — the return investors can get from holding the currency — and the UK’s low trade tension risks. The yen may strengthen to 130 from 143, the analysts added.

Morgan Stanley also said the 10-year US Treasury yield will reach 4% by the end of this year, and stage a much larger decline next year as the Federal Reserve delivers 175 basis points of interest-rate cuts. The yield was up four basis points on Monday to 4.44%.

Investors are looking to a slew of US labor-market indicators this week, including the May employment report, for help in determining the next shifts in Fed policy and its implications for the dollar. They will also closely follow any developments on trade negotiations after China and the US accused each other of violating a deal concluded last month.

Tax Risk

For Goldman Sachs, investors are particularly focused on a potential change to US tax rates on foreign individuals and companies. The measure is buried deep in the tax-and-spending bill that Trump is muscling through Congress, and it calls for, among other things, higher taxes on passive income — such as interest and dividends — earned by investors who are potentially sitting on trillions in American assets.

“Even if the application is relatively narrow, such a tool would exacerbate concerns about risks of US investments, at a time when investors are already looking at shifting cross-asset correlations as a reason to seek greater diversification away from US assets,” strategists including Kamakshya Trivedi and Michael Cahill wrote in a note.

In a separate report, Goldman Sachs strategists said their models suggest the dollar is about 15% overvalued and therefore it has further to fall. The decline will likely be driven by reallocation and repricing of global assets, they added.

source : Bloomberg

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Markets in focus

US Tech 100 trades within range as momentum plateaus

Despite continuous tariff-related headlines throughout the week, investors demonstrated increasing fatigue towards policy flip-flopping developments. The positive market reaction to the trade court's ban proved considerably more subdued than previous responses to UK and Chinese trade agreements. Similarly, equity markets exhibited minimal reaction when the ban was subsequently averted. Market participants now recognise the rapid pace of policy changes and are adopting a more cautious observational approach before reacting.

From a technical analysis perspective, the US Tech 100 Index maintained firm support above its 200-day simple moving average (SMA) and continued its upward trajectory along the 20-day SMA, although momentum appears to be plateauing. The index is likely to trade within a defined range between resistance at 22,223, established by February's peak, and support around 20,500, unless a decisive breakthrough above the historic peak occurs.

Figure 1: US Tech 100 index (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

Hang Seng Index navigates mixed corporate earnings

Individual corporate developments served as the primary driver of Hang Seng Index (HSI) performance during the previous week.

Meituan shares declined as much as 5% despite quarterly profits exceeding expectations with an 87% year-on-year (YoY) surge. The group's chief executive pledged to win the food delivery competition against JD and Alibaba at any cost. Conversely, Kuaishou shares surged 8% following an 11% YoY revenue growth driven by monetisation of its artificial intelligence tools. The company's overseas operations achieved profitability for the first time.

Following CATL and Hengrui Pharma's successful listings earlier this month, additional positive developments have emerged for Hong Kong's initial public offering (IPO) market. According to Reuters, the prominent fast-fashion retailer Shein is planning to list on the Hong Kong Stock Exchange this year after experiencing delays in China's regulatory approval for a London listing. The company was valued at $66 billion in a 2023 assessment. HKEX shares have appreciated over 15% during the past month.

Technical analysis of HSI reveals a narrow trading range between 22,650 and 24,000, which is likely to persist absent major market catalysts. With current levels receiving support from the 50-day simple moving average (SMA), the index may test the upper boundary of this range, which also represents an important psychological barrier. Should the index cross and sustain above 24,000, it may continue its bullish trajectory. Conversely, a breach below the range may drive the index towards 21,700.

Figure 2: Hang Seng Index (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

Gold awaits breakout from compressed trading range

Gold prices retreated further during the previous week amid US Dollar strength and improving US consumer confidence according to the Conference Board's latest survey. However, this development should not detract from the medium to long-term prospect for gold, as gold exchange-traded fund (ETF) holdings remain at elevated levels and central bank demand continues robustly as they seek to diversify their reserves.

Technical analysis indicates that gold prices are compressed between converging trendlines, forming a descending triangle from April's peak and an ascending trend that commenced at the beginning of the year. The uptrend should provide material support around $3,170, though a decisive breakthrough above the falling trendline at $3,340 is required before the recent correction can be reversed. A clear directional signal is advisable before initiating positions in gold.

Figure 3: Spot gold (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

The week ahead

The forthcoming week features two significant central bank meetings, with the European Central Bank (ECB) and Bank of Canada (BoC) both deliberating interest rates decisions that could signal shifting monetary policy stances. Critical employment data dominates the US economic calendar, including Job Openings and Labor Turnover Survey (JOLTS) findings, ADP employment figures, and the closely monitored non-farm payrolls report, providing comprehensive insights into labour market dynamics. China's Caixin purchasing managers' index (PMI) releases will offer alternative perspectives on manufacturing and services sector health beyond official government data. As corporate earnings season concludes, technology firms Broadcom and CrowdStrike represent among the final major reports, offering visibility into semiconductor demand and cybersecurity growth trends amid an evolving economic landscape.

The probability of a 25 basis point (bp) cut at the upcoming ECB meeting has increased from 84% in mid-May to 97% this week, reflecting increasingly dovish sentiment following Trump's threat to increase tariffs on European goods to 50% last week. The June rate decision could mark the seventh consecutive reduction since June 2024, bringing the deposit facility rate to 2%.

Last month, ECB President Christine Lagarde indicated that US tariffs would likely prove more disinflationary than inflationary for Europe, driven by cooling energy prices resulting from slower global growth, US dollar depreciation, and excess supply as global goods are redirected to European markets. December bond futures currently price at 1.67%, indicating another one to two cuts by year-end following the June meeting. Markets will monitor the ECB press conference closely for guidance on future cut timing, as a pause exceeding two meetings could signal an end to accommodative policies.

Figure 4: Europe's inflation approaches ECB 2% target, allowing rates to go down further

as of 30 May 2025

source :ig

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The Bank of Canada will hold interest rates at 2.75% on Wednesday as policymakers await further news on an economy that grew faster than expected last quarter, with at least two more cuts likely this year, according to a majority of economists in a Reuters poll.

That strong consensus around the upcoming decision came after data on Friday showed the economy grew quicker than predicted last quarter, at 2.2%.

The surprising growth was primarily driven by exports as U.S. companies rushed to stockpile Canadian goods before U.S. President Donald Trump'stariffskick in.

Lower household spending and weak domestic demand, however, suggest a downturn is coming. Also, Trump's recent announcement he would double tariffs on imported steel and aluminum to 50% could further worsen the outlook.

Still, solid economic growth in Q1 and core inflation flirting with the upper end of the BoC's 1-3% target range will provide ample reason for the central bank to hold rates this week for a second straight meeting.

Over 75% of economists, 20 of 26, polled by Reuters said so following the gross domestic product data release. That is in line with interest rate futures pricing.

"There isn't urgency from the growth numbers, and there is caution from the core inflation numbers," said Douglas Porter, chief economist at BMO Capital Markets, who expects the BoC to hold.

"The overall GDP numbers have been surprisingly resilient. While the economy is certainly not as strong as the headline suggests, the reality is (that) it has managed to grind out some modest growth."

Prior to the release, economists were unsure about the decision. Among top Canadian banks, BMO, CIBC and TD shifted their call to a pause from a cut while Scotiabank stood pat on their earlier view of no change.

The BoC has already cut the rate by a cumulative 225 basis points since June 2024.

Although there was no clear consensus on where rates would be by end-2025, nearly 75% of economists - 17 of 23 - said the BoC would cut rates at least twice more this year, including eight forecasting another two reductions, seven saying a further three cuts and two a further four.

"While we would argue a cut would be the right step, odds are the BoC won’t deliver one just yet, having signaled that it’s less willing to be forward-looking amidst considerable uncertainty over the outlook," said Avery Shenfeld, chief economist at CIBC.

"So we look for a pause (on Wednesday), but one accompanied by a message that leaves the door open for rate relief ahead."

Last month, BoC Governor Tiff Macklem explicitly warned of a possible growth slowdown in coming quarters. But the BoC will refresh its economic outlook in July, which could be another reason to wait this week.

The economy grew 0.1% in April, better than feared, but that is unlikely to be sustained. It will contract 1.0% and 0.5% this quarter and next, respectively, poll medians showed. If realised, that would meet the technical definition of a recession.

"Whatever happens next, the BoC cannot assume the status quo will hold ... We believe Canadian growth is likely to slow sharply through the middle part of the year, justifying further rate cuts," said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities.

Source: REUTERS

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Warren Takunda

Economic

Stocks

After closing out its best month since 2023, Wall Street was poised to open with losses on Monday as the Russia-Ukraine conflict escalated over the weekend, contributing to broader market anxiety and a jump in oil prices.

Futures for the S&P 500 lost 0.4% before the opening bell Monday, while futures for the Dow Jones Industrial Average gave up 0.3%. Nasdaq futures retreated 0.6%.

In addition to rising tensions in Russia-Ukraine war, oil prices and oil company stocks climbed after OPEC+ decided on a more modest increase in output than was expected.

Devon Energy rose 2.5%, while Chevron, Exxon and ConocoPhillips all rose between 1% and 1.5%.

U.S. benchmark crude oil gained $2.54, more than 4%, to $63.33 per barrel, while Brent crude, the international standard, was up $2.34 at $65.12 per barrel.

Steel companies were on an even bigger ride after President Donald Trump on Friday told Pennsylvania steelworkers he’s doubling the tariff on steel imports to 50% to protect their industry, a dramatic increase that could further push up prices for a metal used to make housing, autos and other goods.

Later in a post on his Truth Social platform, Trump confirmed the steel tariff and said that aluminum tariffs would also be doubled to 50%. Both tariff hikes would go into effect Wednesday, Trump said.

Nucor and Steel Dynamics both rose around 10%, while Cleveland-Cliffs soared a whopping 25%. Shares of U.S. Steel have already taken off this year as it has become increasingly clear that Trump was going to allow some kind of major deal between U.S. Steel and Japan’s Nippon Steel.

Speaking Friday at U.S. Steel’s Mon Valley Works–Irvin Plant in suburban Pittsburgh, Trump talked about the likely partnership in which Nippon will invest in the iconic American steelmaker.

In a light week for corporate earnings reports, both Dollar Tree and Dollar General report in the coming days.

Also Monday, UnitedHealth Group opens its annual meeting, just weeks after its CEO stepped down citing personal reasons. The nation’s largest health insurer, whose shares are down 40% this year, also suspended its full-year financial outlook due to higher-than-expected medical costs.

In Asia, Hong Kong’s Hang Seng initially plunged more than 2% as Beijing and Washington traded harsh words over trade.

China blasted the U.S. for issuing AI chip export control guidelines, stopping the sale of chip design software to China, and planning to revoke Chinese student visas.

U.S. chipmakers were broadly lower early Monday.

A report over the weekend that China’s factory activity contracted in May, although the decline slowed from April as the country reached a deal with the U.S. to slash President Donald Trump’s sky-high tariffs, further undermined market sentiment.

But the Hang Seng closed just 0.6% lower, at 23,157.97. Markets in mainland China were closed for a holiday.

Hong Kong’s Hang Seng dropped 0.6% to 23,157.97 as China and the U.S. accused each other of breaching their tariff agreement reached in Geneva last month.

Tokyo’s Nikkei 225 lost 1.3% to 37,470.67, while the Kospi in Seoul added 0.1% to 2,698.97.

Australia’s S&P/ASX 200 retreated 0.2% to 8,414.10.

India’s Sensex lost 0.4% while the Taiex in Taiwan fell 1.6%.

Elsewhere, in Europe at midday, Germany’s DAX retreated 0.3% and the CAC 40 in Paris declined 0.5% British FTSE 100 gained 0.1%.

In currency trading early Monday, the U.S. dollar fell to 142.72 Japanese yen from 143.87 yen. The euro inched up to $1.1418 from $1.1351.

Source: AP

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Stocks

Powell Poised to Reaffirm Caution as Tariff Tensions Rattle Markets

Federal Reserve Chair Jerome Powell is set to deliver a closely watched speech today at 17:00 GMT, with markets on edge over renewed U.S.-China trade tensions, a weakening global outlook, and escalating political pressure on Fed policy. Powell is expected to stick to the Fed’s “wait-and-see” message, but the timing of his remarks—amid deteriorating economic diplomacy and rising recession concerns—raises the stakes for investors.

Fed Holds Line as Trump Escalates Pressure

Despite a personal meeting last week with President Trump, during which Trump pushed Powell to begin cutting interest rates, the Fed chair is likely to reaffirm that the current 4.25%–4.50% rate range remains appropriate. Powell has consistently emphasized the Fed’s independence and commitment to data-driven policy, underscoring that rate decisions will hinge on inflation and labor data rather than political pressure. However, Powell now faces a tougher balancing act, as Trump’s newly revived tariff threats against China risk tightening financial conditions and potentially stalling growth.

U.S.-China Trade Rift Reopens

Daily E-mini S&P 500 Index

The positive tone following last month’s tariff ceasefire between the U.S. and China has quickly unraveled. Beijing has accused Washington of violating the Geneva trade agreement, prompting fears of retaliatory measures. Stock index futures dropped sharply in response: S&P 500 futures are down 0.53%, Nasdaq futures off 0.68%, and Dow futures lower by 174 points. With the White House now fast-tracking import levies, markets are pricing in potential disruptions to trade flows, corporate margins, and global supply chains.

Jobs Data Critical to Fed Path

Markets are also bracing for Friday’s May nonfarm payroll report. Expectations are for job growth around 130,000, with the unemployment rate holding at 4.2%. A soft print could shift market expectations toward a rate cut as early as Q3. Several labor indicators this week—including job openings, ADP payrolls, and weekly claims—will serve as key signals. Powell is unlikely to preempt the jobs data but may highlight labor market trends as a pivotal input for upcoming decisions.

Market Forecast: Bearish Bias Ahead of Powell

Given escalating geopolitical stress, downward pressure on risk assets, and uncertainty around Fed responsiveness, the near-term outlook turns bearish. Equity markets are likely to remain under pressure unless Powell surprises with dovish language. The U.S. dollar could see a bid as risk-off sentiment rises, while Treasury yields may decline on safe-haven flows.

For traders, today’s speech is less about what Powell says—and more about whether he signals flexibility in a rapidly tightening economic environment.

source : fxempire

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Warren Takunda

Stocks

London stocks had pared earlier small losses to trade flat by midday on Monday as investors digested a raft of UK data releases amid renewed trade tensions between the US and China.

The FTSE 100 was steady at 8,770.75.

Sentiment took a hit after Trump said on Friday that he was planning to double tariffs on steel and aluminium imports to 50% from this week. He also said that China had violated the Geneva trade agreement.

China hit back, accusing the Trump administration of "seriously violating" its trade deal with the US, saying that it had introduced multiple "discriminatory restrictive" measures.

These include issuing guidance on AI chip export controls, stopping sales of chip design software to China and revoking visas for its students.

China’s Commerce Ministry said: "The US government has unilaterally and repeatedly provoked new economic and trade frictions, exacerbating uncertainty and instability in bilateral economic and trade relations.

"If the US insists on its own way and continues to damage China’s interests, China will continue to take resolute and forceful measures to safeguard its legitimate rights and interests."

Russ Mould, investment director at AJ Bell, said: "Donald Trump has upset markets once again.

"Doubling import taxes on steel and aluminium, and aggravating China once again, mean we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.

"Equity markets were down across Europe and Asia, with futures prices implying a similar pattern when Wall Street opens for trading on Monday. Unsurprisingly, gold got a boost as investors returned to safe-haven assets."

On home shores, a survey showed the manufacturing sector continued to struggle in May, weighed down by faltering client confidence, higher costs and ongoing trade uncertainties.

The S&P Global UK manufacturing PMI rose to a three-month high of 46.4 last month, from 45.4 in April and above the flash estimate of 45.1.

However, the sector remains in contraction. A reading above the neutral 50.0 benchmark indicates growth but one below it suggests contraction.

Elsewhere, figures from the Bank of England showed that mortgage approvals fell sharply in April after changes to stamp duty thresholds came into effect.

According to the latest money and credit report, net mortgage approvals for house purchases - an indicator of future borrowing - fell for the third consecutive month, by 3,100 to 60,500 in April.

Analysts had been expecting a more modest decline to 63,000.

Net borrowing of mortgage debt also tumbled, sliding £13.7bn to -£0.8bn and reversing March’s £9.6bn net increase.

Changes to stamp duty thresholds came into effect on 1 April, leading to a spike in deals as home buyers rushed to complete ahead of the deadline.

Earlier, data from Nationwide showed that house priced edged higher in May despite wider economic uncertainties.

In equity markets, defence firms were among the top performers, with Babcock, BAE Systems, Rolls-Royce and Qinetiq all up sharply after the UK government pledged to build up to 12 attack submarines as part of AUKUS programme.

Russ Mould said investors were targeting "an industry with a clear earnings tailwind".

Silver and gold miner Fresnillo and gold miner Endeavour Mining both shone as the price of the yellow metal rose.

Aberdeen rallied after an upgrade to ‘buy’ from 'neutral’ at Goldman Sachs, which said the recent investor focus has centred disproportionately on the underperforming asset management unit.

Vodafone edged lower after it and CK Hutchison Holdings said the merger of telecoms firms Vodafone UK and Three UK successfully completed on 31 May.