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Market news

1 June 2020

European session review: USD weakens amid improved risk appetites as U.S. President signals no termination of the phase-one trade agreement or imposition of additional tariffs on China's goods

TimeCountryEventPeriodPrevious valueForecastActual
07:50FranceManufacturing PMIMay40.340.340.6
07:55GermanyManufacturing PMIMay34.536.836.6
08:00EurozoneManufacturing PMIMay33.439.539.4
08:30United KingdomPurchasing Manager Index Manufacturing May32.640.740.7

USD fell against other major currencies in the European session on Monday as risk appetites improved as the U.S. President's speech signaled no termination of the phase-one trade agreement and the latest PMIs suggested a recovery in manufacturing activity in some countries.

The U.S. President Donald Trump's speech on Friday was heated in rhetoric, but it lacked details on what measures would be taken against China for new national security laws in Hong Kong. At the same time, Trump did not signal that the U.S. would be pulled out of the phase one trade deal reached earlier this year or additional tariffs would be imposed on China's goods. Trump said that the U.S. would no longer grant Hong Kong special status on trade and instead would apply the same restrictions to the territory it had in place with China.

Meanwhile, Bloomberg reported on Monday, citing people familiar with the situation, that China's state-owned agricultural companies Cofco and Sinograin were ordered to pause purchases of some U.S. farm goods including soybeans, which could threaten phase one trade deal.

The latest PMI data suggested the contraction in manufacturing output may have found a bottom in some countries. In China, the Caixin/Markit PMI showed an unexpected improvement in factory activity last month - from 49.4 in April to 50.7 in May - due to easing of restrictions related to the COVID-19 pandemic. That was the highest reading since January. In the Eurozone, the manufacturing PMI recovered somewhat in May - to 39.4 from April’s record low of 33.4, although factory activity still contracted considerably. Japan and South Korea, however, recorded the steepest declines in activity in more than a decade.

Investors, however, remained cautious over social unrest over police brutality in the U.S. Protests over the death of George Floyd, who died after being restrained by Minneapolis police on May 25, have raged for most of the weekend in several U.S. cities, with National Guard troops called in to at least 15 states around the country and curfews imposed in at least a dozen major metropolitan areas in an effort to keep the peace.

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