Steady start as markets digest data ahead of rate decisions and NFP

ECB and BoC take centre stage 

After much speculation all year on who will press the rate cut button first and when, the European Central Bank looks set to beat the Federal Reserve in cutting first. However, there are growing expectations that the Bank of Canada will also begin its easing cycle this week when it meets on Wednesday, as June rate cut bets got a boost following Friday’s weaker-than-expected GDP growth in the first quarter.

Market odds for a BoC cut currently stand at just over 80% while the ECB’s expected move on Thursday is almost fully priced in. Yet, there was bad news for those hoping for back-to-back cuts by the ECB as an upside surprise in the May preliminary CPI readings has seen cumulative bets for 2024 being trimmed.

Investors now see little chance of the ECB slashing rates more than twice this year and this is empowering the euro against the US dollar.

NFP eyed as US data seen moving in right direction 

The Fed finally had some good news on the inflation front on Friday as the closely watched core PCE price index rose by just 0.2% m/m in April, below forecasts of 0.3% and the slowest pace since December. On an annual basis, core PCE was unchanged at 2.8% so the Fed will probably want to see more soft data before flagging a cut.

But after both personal income and spending growth also slowed markedly in April, a softer payrolls report on Friday would further raise hopes that the Fed could soon make a dovish pivot, putting a September cut back on the map.

In the meantime, the US dollar appears to be on the backfoot, drifting lower for the third straight session. Despite that, there’s been little relief for the Japanese yen, which has been stuck in the 157.00 region for more than a week.

Some hope for beleaguered yen, ISM mfg PMI up next 

More broadly, the yen is firmer today as Japan’s final manufacturing PMI reading confirmed that the sector expanded for the first time in a year in May, while a solid Q1 capex figure pointed to a likely upward revision in Japan’s GDP print for the same period.

There were more upbeat manufacturing PMIs across Asia, including from China. Investors’ attention later in the day will shift to the ISM manufacturing PMI out of the US amid a steady rise in the prices paid component over the last few months.

Equities buoyed as OPEC+ decision fails to lift oil 

Still, Wall Street is buzzing hot on the heels of Friday’s data, with futures edging higher. The S&P 500 and Nasdaq more than reversed April’s losses in May, although the Nasdaq bucked the trend on Friday to close slightly lower in a volatile session.

The announcement by OPEC+ on Sunday is underpinning the positive mood in equity markets on Monday. The oil cartel decided to begin unwinding some of the voluntary cuts possibly as early as October and this seems to have offset the agreement to extend up to 3.66 million bpd of cuts until the end of 2025.

Oil futures fell at the start of trading on Monday but have now started to inch higher.