USD sells off on soft ISM, but stocks remain mixed

Headlines

* ISM manufacturing missed expectations, prices paid eased

* US Dollar and Treasury yields sunk as rate cuts bets improved

* Stocks were mixed with tech and Nvidia outperforming

* Gold found a bid after posting three-week lows

FX: USD turned sharply lower on disappointing ISM manufacturing data. It fell to a three-month low and in contraction for a second straight month. Notably, new orders plunged to the lowest level in 12 months, with the biggest drop in nearly two years. Treasury yields sunk with 40bps of rate cuts now priced in from the low 30s last week. The DXY broke down through long-term trendline support and the 200-day SMA at 104.42.

EUR pushed higher to 1.09 and levels last seen in late March. Poor US data did for the buck. Final eurozone May manufacturing PMI was revised a tad lower, modestly weighing on the euro in the morning session. Guidance is key at Thursday’s ECB meeting, after a 25bps rate cut.

GBP popped up to 1.28, taking advantage of the weak dollar. UK Manufacturing PMI was revised down but was still the strongest in two years. The July national election means we do not hear from any BoE officials until after 4 July. There is little UK data out this week so cable will be led by the greenback.

USD/JPY turned lower as the 10-year Treasury yield continued its turnaround lower. Watch for strong support in that bond around 4.35%. The currency major is close to the 50% level of the “yentervention” high/low at 156.03.

AUD advanced to a high of 0.6695. The aussie ignored weaker iron ore. GDP figures are released midweek. USD/CAD was relatively quiet with eyes on the BoC. Last week’s weak GDP was not as bad as it initially looked with consumer spending and business investment solid. But odds of a rate cut on Wednesday have risen to above 80%.

US Stocks: Indices closed mixed as growth fears weighed on sentiment after the US data. The prices paid element slipped below all estimates. The S&P 500 finished higher by 0.11% at 5,283. The Nasdaq 100 settled 0.35% up at 18,600. The Dow closed in the red by 0.3% at 38,571. Once again, like in May, cyclical, momentum, quality, and growth sectors outperformed minimum volatility and defensive sectors. Nvidia closed 4.9% higher after its weekend announcement about releasing new AI chip technology on a one-year basis. This is faster than the prior two-year schedule. A glitch at the NYSE saw Berkshire Hathaway plunge. before 60 stocks in total were halted and the issue fixed.

Asian Stocks: APAC futures are mixed. Asian stocks kicked off June strongly with better China data, positive Nvidia tech news and a potential peace deal in Israel-Gaza. The ASX 200 was helped by an upward revised PMI figure.  India hit a record high after PM Modi won a landslide election victory. That led upside in energy and financials. The Nikkei 225 briefly rose above 39,000. China stocks were mixed with Hong Kong soaring on Alibaba and Tencent moves higher. The mainland lagged.

Gold touched three-week lows, before finding support as yields and the dollar fell. The 50-day SMA sits at $2331.

Day Ahead – US Jobs data

Markets have focused on US price data over recent weeks. It’s now the turn of the Fed’s other part of their mandate – full employment.  The release of JOLTS job vacancies goes to the centre of the Fed’s focus of the labour market returning to better balance. Lower job openings will reflect a better equilibrium between demand and supply. That might have implications for how the Fed thinks both about labour demand and wage price pressures.

ADP private payrolls figures are released on Wednesday, as well as ISM Services numbers, with the employment components eyed. Of course, the main event this week will be Friday’s US monthly NFP report for May. A similar report to the prior month’s is forecast.