US DATA: Tariff Impact Courses Through Weak Manufacturing ISM Report
The ISM Manufacturing headline PMI reading unexpectedly fell to 48.5 in May (49.5 survey, 48.7 prior), leaving it in contractionary territory for a 4th month. As the survey put it, "contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken". Tariffs cast a heavy shadow over this stagflationary report report, impacting everything from exports to prices paid.
- New Orders ticked 0.4 points higher to 47.6, with the closely-watched (in a nonfarm payrolls survey week) Employment reading up for a 2nd consecutive month by 0.3 points to 46.8. Production rose 1.4 points to 45.4. As such there was some stability evident in the May subcategories - though these should be seen in the context of very weak recent figures (New Orders has now declined 4 consecutive months after 3 months of expansion; Production: 3 consecutive contractions after 2 months of expansion.)
- Supplier Deliveries continued to slow - considered a "positive" per the ISM survey - with the index rising 0.9 points to 56.1. Backlogs picked up 3.4 points to 47.1 but still contractionary. And on employment, the report notes "remained in contraction, as head-count reductions continued. Companies generally opted for layoffs because they are quicker to implement than attrition".
- The big drags came from trade. New Export Orders fell 3 points to 40.1 (outside of Covid, the lowest since March 2009) - and the report notes that Imports "plunged into extreme contraction", down 7.2 points to 39.9 (a 16-year low). Inventories fell 4.1 points from 50.8 prior.
- The report notes re inventories that "the pull forward of materials by companies to minimize the financial impacts of tariffs is largely completed", with Customers' inventories perhaps now a bit on the low side (44.5, down 1.7 points), potentially pointing to overall stability at weak levels.
- Prices paid were basically in line with expectations, dipping to 69.4 (69.3 survey, 69.8 prior) though still around the highest since June 2022, "driven by increases in steel and aluminum prices impacting the entire value chain, as well as the general 10-percent tariff applied to many imported goods".
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USDCAD TECHS: Hits Bear Trigger, New Cycle Low
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4087 50-day EMA
- RES 1: 1.3906/3935 High Apr 17 / 20-day EMA
- PRICE: 1.3793 @ 17:00 BST May 2
- SUP 1: 1.3760 Low Apr 21 and the bear trigger
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
The trend set-up in USDCAD deteriorated further Friday, with prices slipping through the bear trigger to narrow the gap with next support. The fresh cycle low reinforces the bear cycle and signals scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3943, the 20-day EMA.
AUDUSD TECHS: Consolidation Phase
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6470 High May 2
- PRICE: 0.6445 @ 16:59 BST May 2
- SUP 1: 0.6344/6316 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD remains inside a consolidation phase, having traded either side of the 0.6400 level for 10 consecutive sessions. The underlying trend remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6316, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US TSYS: Rates Retreat, Sentiment Improved Though Trade Risk Remains
- Treasuries look to finish near late Friday session lows after trading firmer on the open, higher than expected Nonfarm payrolls at 177k (sa, cons 138k) of which private contributed 167k (sa, cons 125k) triggered the early reversal.
- However, two-month revisions of -58k offset the 39k beat for nonfarm payrolls, with a similar story for private (a 42k surprise vs -48k two-month revision).
- Stocks are back near four week highs - pre-"Liberation Day" levels as hopes of some trade deal being made improved sentiment.
- The Wall Street Journal reports that "Beijing is considering ways to address the Trump administration’s gripes over China’s role in the fentanyl trade... potentially offering an off-ramp from hostilities to allow for trade talks to start." The Journal notes that "discussions remain fluid" and China "would like to see some softening of stance from President Trump".
- Currently, the Jun'25 10Y contract trades -20 at 111-07.5 vs 111-02 low -- initial technical support (50-dma) followed by 110-16.5/109-08 (Low Apr 22 / 11 and the bear trigger). Curves bear flattened, 2s10s -3.480 at 48.002, 5s30s -4.911 at 86.807.
