Summer Breeze

June 03, 2024

Summer Breeze

  • USD kicked-off the summer month on a mixed tone. The US May manufacturing ISM is today’s data highlight.
  • MXN slides after Mexico’s election results.
  • China’s manufacturing sector expands at fastest pace in almost two years.

Please see our Drivers for the Week Ahead for an in-depth look at what markets are facing this week.

USD drifted lower in May against all major currencies. NOK was the top performer last month (up almost 6% versus USD) supported in large part by the Norges Bank’s hawkish hold. JPY managed to eke out a 0.3% gain versus USD in May underpinned by Bank of Japan intervention. Japanese officials disclosed it spent a record ¥9.79 trillion between April 26 and May 29 to curtail JPY weakness.

Meanwhile, soft US consumer spending data contributed to last month’s USD underperformance and modest gains in Treasuries. The control group retail sales and real personal consumption spending unexpectedly contracted in April weighing on US interest rate expectations.

Nevertheless, positive US real wage growth, rising house prices, loose financial market conditions and a strong labor market point to a solid recovery in household spending activity. The encouraging US domestic demand outlook justifies the Fed’s higher-for-longer policy rate narrative and supports the year-to-date USD uptrend.

USD kicked-off the summer month on a mixed tone and is holding above its key 200-day moving average. AUD is underperforming on lower iron ore prices. Asian stocks are up sharply as China’s Caixin manufacturing PMI increased a tick more than expected to near a two-year high at 51.7.

The US May manufacturing ISM is today’s data highlight (3:00pm London). Headline is projected to improve to 49.7 vs. 49.2 in April. Already released regional Fed manufacturing business surveys suggest risks are balanced. Of note the US S&P Global manufacturing PMI rose to a two-month high at 50.9 in May consistent with an expansion in the manufacturing sector.

The Bank of Canada (BOC) and European Central Bank (ECB) policy-setting meetings are the key events this week (Wednesday and Thursday, respectively). Interest rate futures imply over 80% probability of a 25bps BOC rate cut while an ECB cut is fully priced-in. In contrast, virtually all Fed officials are urging patience before easing. This underscores the monetary policy divergences theme that remain in play and favor USD.

USD/MXN rallied above 17.0000. Claudia Sheinbaum is on track to become Mexico’s President and her party is poised to maintain control of both houses of congress with a supermajority. Sheinbaum has pledged to continue President Andrés Manuel López Obrador's agenda. Beyond Mexico’s stable political landscape, the fundamental backdrop remains positive for MXN. Mexico has one of the highest real interest rates within the EMFX universe, a stimulative fiscal stance and boasts a favourable balance of payments backdrop (small current account deficit and large net FDI inflows).

 

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image ↻

Type in the word seen on the picture

I am a current investor in another jurisdiction

1 of 2

2 of 2