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China Caixin PMI Manufacturing rose from 49.5 to 50.9 in May, signaling the first improvement in the health of the sector since February. Caixin noted stronger increase in output as firms saw fresh upturn in new business. Input costs fell solidly. Employment, however, continued to decline as business confidence softened.

Wang Zhe, Senior Economist at Caixin Insight Group said: "In a nutshell, manufacturing activity improved in May. Both supply and demand expanded, but employment sank to a three-year low. Businesses stepped up purchasing, inventories of raw materials grew marginally, logistics picked up, prices continued to slump, and manufacturers' optimism wavered."

Full China Caixin PMI Manufacturing release here.

Japan PMI Manufacturing was finalized at 50.6 in May, up from April's 49.5. That's the first expansionary reading since October 2022, signalling a modest overall improvement in operating conditions. Also, business optimism reached highest level since January 2022, while supplier performance stabilized.

Tim Moore, Economics Director at S&P Global Market Intelligence, said: "The latest au Jibun Bank PMI survey highlights a decisive turnaround in manufacturing sector performance during May and brings to an end a six-month period of weakening business conditions."

Full Japan PMI manufacturing release here.

IMF chief economist, Pierre-Olivier Gourinchas, suggested that a unique opportunity may be presenting itself in Japan to re-anchor inflation expectations to BoJ's target. However, he cautioned that the process won't be instantaneous.

"There's an opportunity right now," Gourinchas said, "but it will take time. It won't happen overnight." Achieving this re-anchoring requires convincing the public that Japan won't slide back into deflation - a challenge given the country's prolonged struggle with price stagnation. Gourinchas believes it's "too early" for the BoJ to tighten policy, stressing the need for careful handling of the situation.

Pointing to the global trend of persistent inflation despite initial expectations of transitory dynamics, Gourinchas warned, "Obviously, the history of the last two years is one where inflation that was supposed to be transitory, turned out to be not transitory. We could have similar dynamics in Japan." Given this possibility, he underscored the need for vigilance and readiness to tighten monetary policy if inflation remains too high.

Regarding potential strategies for policy tightening, Gourinchas suggested a cautious approach. "It's probably safer to first move away from the control of long-term yields. And then, if the need arises to tighten monetary policy, it can do so as part of the usual tightening of the policy rate," he proposed. However, he acknowledged that executing this transition would be technically complex.

Comments from top officials from Fed suggested a pause in interest rate hikes in June while possible, shouldn't be misinterpreted as a sign that peak rates for the cycle have been reached.

Fed Governor, Philip Jefferson, clarified, "A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle."

Jefferson, suggested that skipping a rate hike at an upcoming meeting would provide an opportunity for the committee to review more data before deciding on the extent of any further policy tightening.

Philadelphia Fed President, Patrick Harker, echoed this sentiment, albeit with a more forceful argument for the need to 'skip' rather than 'pause'. "I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause," he remarked.

Harker believes the current policy is nearing, if not already at, a restrictive level and suggests a period of careful reflection before further action is taken.

Harker added, "I think we have to be ready that we might have to do more and I'm fully aware we have to do that and willing to do that, but I want to give it a little bit of time."

BoE policymaker, Catherine Mann, has highlighted the unique and mounting inflation problem that Britain is facing in comparison to the United States and the Eurozone.

Mann pointed to both large-scale price increases and the rising persistence of these underlying pressures as causes for concern. She emphasized, "The gap (between headline and core CPI) that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area."

The gap she refers to is the disparity between headline inflation (which includes volatile commodities like food and energy) and core inflation (which excludes these commodities).

Notably, Mann underscored the role of British businesses and increased wages in maintaining high core inflation. She explains that businesses in the UK have been successful in passing on price rises, contributing to this persistent inflation gap. This, coupled with increased wages, suggests that headline inflation has been slower to recede towards the core rate than it has in other regions.

"There is a gap between the headline, which is incorporating energy which went up really high and now has come down, and core where we do start to see the implications coming through pricing channels, through wage negotiations, into something that is persistent," Mann explained.

SNB Chairman Thomas Jordan recently warned yesterday that the more inflation is entrenched in the perception of companies and households, the harder it is to bring it down. He highlighted the urgency of the situation, stating, "We have to bring it back below 2% as soon as possible."

Discussing the bank's approach towards interest rates, Jordan assured that Switzerland's are "still very low". "We don't see a big risk in over-tightening monetary policy. It is not something that will damage financial stability in general in Switzerland," he affirmed.

Regarding the financial stability issues surrounding Credit Suisse, Jordan clarified that it was an individual case where the problem was not interest rates, but rather a "lack of trust of market participants in an institution."

Looking ahead, market expectations suggest a 25bps rise from the current 1.5% level when the central bank delivers its next assessment in June.

Key Highlights

• Crude oil price started a fresh decline below the $72 support.
• It traded below a key bullish trend line with support near $71.80 on the 4-hour chart.
• EUR/USD is still at risk of a move toward 1.0620.
• The US ADP employment could change by 170K in May 2023, down from 296K.

Crude Oil Price Technical Analysis

Crude oil price struggled to clear the $75 resistance against the US Dollar. The price started a fresh decline and traded below the key $72 support.

Looking at the 4-hour chart of XTI/USD, the price traded below a key bullish trend line with support near $71.80. There was a close below the $70 support, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour).

The price spiked below the 61.8% Fib retracement level of the upward move from the $63.79 swing low to the $74.73 high. On the downside, initial support is near the $66.40 level.

The next major support sits near the $65.00 level. Any more losses might call for a test of the $62.00 support zone in the coming days.

On the upside, the first major resistance is near the $70.50 level. The next key resistance is near $72.00 and the 100 simple moving average (red, 4-hour), above which the price may perhaps accelerate higher.

Looking at EUR/USD, the pair is moving lower and there is now a risk of a downside break below the 1.0620 support zone.

Economic Releases to Watch Today

• US Initial Jobless Claims - Forecast 235K, versus 229K previous.
• US ISM Manufacturing Index for May 2023 – Forecast 47.0, versus 47.1 previous.
• US ADP Employment Change for May 2023 - Forecast 170K, versus 296K previous.

• EURJPY reversed from resistance level 151.35
• Likely to fall to support level 148.00

EURJPY currency pair recently reversed down with the daily Shooting Star from the key resistance level 151.35 (top of the previous minor impulse wave 3 from the start of May).

The downward reversal from the resistance level 151.35 started the active short-term correction (ii), which belongs to the higher impulse waves 5 and (C).

Given the still overbought daily Stochastic , EURJPY can be expected to fall toward the next support level 148.00, target price for the completion of the active correction (ii).

• AUDUSD reversed from resistance level 0.6565
• Likely to fall to support level 0.6400

AUDUSD currency pair recently reversed down from the key resistance level 0.6565 (former strong support from March and April, acting as the resistance after it was broken).

The downward reversal from the resistance level 0.6565 continues the impulse wave 3 of the intermediate downward impulse sequence (3) from the start of May.

AUDUSD can be expected to fall further toward the next support level 0.6400, target price for the completion of the active impulse wave 3.