Talking Points:

Euro at Risk if Disappointing PMIs Bolster ECB Stimulus Speculation
British Pound Rally May Not Find Added Fuel in 1Q UK GDP Revision
Australian Dollar Rebounds, Yen Drops on Upbeat Chinese PMI Data

The preliminary set of May’s Eurozone PMI data headlines the economic calendar in European hours. The region-wide composite measure is expected to tick gently lower to 53.9, down from a three-year high at 54.0 recorded in the prior month. Fundamental news-flow from the currency bloc has increasingly disappointed relative to consensus forecasts over recent months (according to data from Citigroup). That suggests analysts are underestimating the degree of malaise in the area, opening the door for a downside surprise. Such an outcome may amplify bets on an imminent expansion of ECB stimulus, compounding downward pressure on the Euro after it made a tentative technical break lower yesterday.

The second revision of first-quarter UK GDP figures is expected to confirm output grew 0.8 percent in the three months through March. The year-on-year growth rate is seen at 3.1 percent, the highest since the fourth quarter of 2007. The British Pound has enjoyed a swell in supportive monetary policy expectations and an upbeat GDP print would certainly not fall out of step with that dynamic. The extent to which a now significantly backward-looking data set can offer enough beyond what is already priced in to generate upside follow-through is suspect however.

The Australian Dollar outperformed in overnight trade, rising as much as 0.4 percent on average against its leading counterparts. The move followed an upbeat Chinese Manufacturing PMI release from HSBC. The index jumped to 49.7 in May, topping expectations of a print at 48.3. While a print below the 50 “boom-bust” level still indicates factory-sector activity likely shrank this month, the pace of contraction fell to the lowest since December. That hints a pivotal industry in the world’s second-largest economy may be carving out a bottom and readying a recovery. That bodes well for Australia, which counts on China as its top export market, and consequently for RBA policy bets. The Japanese Yen fell as the PMI print fueled risk appetite and sent Asian stocks higher, weighing on the safe-haven currency.

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