The UK manufacturing PMI for May was finalized at 46.4. This is an increase from the preliminary reading of 45.1 and last month’s figure of 45.4. Data from S&P Global, released on June 2, 2025, shows ongoing challenges in the manufacturing sector due to tough domestic and international market conditions. Inflation in input costs and selling prices is easing a bit. However, output, new orders, and exports are still declining. Smaller manufacturers are feeling the pinch the most, facing steep drops in output and demand, leading to low business confidence and job losses.

Hints Of Improvement

There are some signs of improvement. The indices for output and new orders have risen over the past two months, even exceeding the early estimates for May. Still, the trading environment remains tough both at home and abroad. This indicates an uncertain near future for the sector, with the possibility of either stabilization or further decline. The final manufacturing PMI for May shows a slight rise to 46.4 from April’s 45.4. However, it is still below the critical 50-point mark, which indicates growth. This suggests that contraction is still a major issue in UK industry. Although conditions may not be worsening as rapidly as before, there is no clear sign of a return to overall growth. S&P’s data does show slight improvements. The increase in new orders and output, which is better than the earlier provisional reading, provides modest encouragement. Yet, any reading in the 40s shows that factories are still holding back, even if the decline is not as sharp. This means activity is still low, and production managers are likely maintaining tight control over output due to consistently weak demand. Lower input costs and more moderate price pressures may indicate easing supply chain issues or stabilizing transportation and raw material costs. This could help reduce the financial strain on producers’ margins. However, without a significant increase in demand, reduced costs alone won’t lead to recovery. It’s important not to confuse a slowdown in inflation with actual economic improvement; it’s just one part of a larger picture.

Impact On Smaller Firms

Payne’s comments highlight the uneven impact of the downturn. Larger firms may handle these pressures better, but smaller firms are struggling more quickly. Their issues with cash flow and declining orders are forcing them to cut jobs and reduce operations. This especially affects their willingness to invest in the longer term in supply chains and factory capacity. The situation has been mixed, but recent months have clarified some aspects. While the rate of decline is easing, businesses remain cautious. We should expect forthcoming data to show mixed outcomes—some indicating slower declines and others reminding us how quickly conditions can change. Given slowing buyer interest at home and abroad, there is no assumption of stability yet. Our analysis also reveals a gap between positive and negative indicators in the data. Confidence levels have dropped again, which is notable. In our experience, low confidence often leads to reduced hiring and investment. When smaller producers show low confidence, the effects can become self-reinforcing. As inflation pressures decrease and order volumes seem to improve compared to March and April, we are staying watchful. While there are signs to monitor for positive trends in price and orders, the near-term risks still appear negative. The current priority should be on managing input costs and addressing pressure points in the supply chain. The strength of the pipeline will be tested, especially as European demand stabilizes and Asian suppliers remain aggressive with lead times. We have already seen mid-tier margins tightening. Traders should be proactive, considering whether the previous downward trend is ending or if we are simply experiencing a temporary slowdown before another drop. These trends require tactical responses and careful timing. Delays in positioning could lead to missed opportunities, especially if forward-looking indicators show revised contraction signs when June PMI flash figures are released in the coming weeks. Those tracking market sentiment should be alert to erratic responses, especially in second-tier industrial companies where forecasts have been inconsistent. As sentiment shows signs of flickering without gaining momentum, we remain committed to evaluating strength rather than assuming it. Create your live VT Markets account and start trading now.

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In April, UK mortgage approvals were 60,460, which is lower than the expected 63,000. The previous number was 64,310 but later revised to 63,600. Net consumer credit reached £1.6 billion, exceeding the estimated £1.1 billion. The earlier figure for consumer credit was revised from £0.9 billion to £1.1 billion. Net mortgage borrowing fell sharply to -£0.8 billion, a drop of £13.7 billion from the £9.6 billion increase in March. Despite this significant decline, the annual growth rate for net mortgage lending slightly decreased from 2.7% to 2.5%. On the other hand, the annual growth rate for consumer credit rose from 6.2% in March to 6.7% in April. The latest data from the Bank of England shows a clear picture but deserves deeper analysis due to the adjustments and variations involved. In April, mortgage approvals were below expectations. While analysts predicted 63,000 approvals, only a little over 60,000 were recorded. March’s figure was also adjusted down slightly. This shortfall reflects the ongoing weakness in housing demand. Mortgage approvals usually indicate future housing market activity, suggesting a sluggish residential market as summer approaches. More significant is the change in net borrowing. In April, households paid off £0.8 billion in mortgage debt. This shift is notable because it contrasts sharply with March’s nearly £10 billion increase in borrowing. Such a significant swing implies more than just seasonal changes. Although it’s common for households to pay down mortgages, the size of this shift raises questions about buyer confidence. It indicates that households might be becoming more cautious about property debt, possibly due to changing interest rates or affordability challenges. However, not all consumers are being cautious. Consumer credit grew by £1.6 billion in April, exceeding expectations. More people are borrowing for spending. This growth isn’t just a one-time event; on a yearly basis, the growth rate has risen to 6.7%. Even when considering inflation, this shows an increasing reliance on personal credit. March’s figure was lowered slightly but revised upward from £0.9 billion, confirming the overall upward trend. So, how do we make sense of these mixed signals? For traders in interest rate-sensitive areas, this divergence provides complexity ahead of the central bank’s decisions. The decline in secured lending, against the backdrop of rising unsecured credit growth, creates a unique scenario for adjusting yield expectations. Short-term rates must consider the softening housing demand against signs of stronger consumer activity elsewhere. This situation doesn’t lead to clear policy conclusions but does create potential for market volatility. Additionally, the growth in consumer credit suggests that while housing may be under pressure, household finances for discretionary spending remain relatively strong. This points to persistent inflation driven by demand, even as some sectors slow down. Traders should watch for next month’s figures. The key will be whether April’s data is an isolated downturn in mortgage trends or if it signals a broader decline in credit demand. Adjustments in risk profiles along the yield curve may occur before the complete picture emerges, so focus will need to shift to leading indicators—such as bank lending surveys, default rates, and changes in loan-to-income ratios from major lenders. While Bailey and his committee may take a moment to assess developments, we cannot afford to pause. The differences between secured and unsecured lending must be closely monitored over the next few months. This data isn’t just abstract figures—it reflects consumer sentiment towards risk amidst ongoing cost-of-living pressures. The direction of this sentiment will influence rate predictions and market positioning.

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The manufacturing sector in the Eurozone is showing signs of recovery, with production increasing since March. In May, the final manufacturing PMI was 49.4, matching the preliminary figure. Key economies like Germany, France, Italy, and Spain are seeing growth, indicating a broad-based recovery. Historical data suggests there is a 72% chance of continued growth next month, although potential US tariff hikes on EU imports could pose a risk. In May, industrial production rose across major Eurozone economies, partly driven by expected US tariffs. This led US buyers to place early orders. France did not benefit as much from these trends. Lower interest rates and decreasing oil and gas prices have eased pressure on the sector. German companies are expected to do better than their European peers thanks to new government expansion policies.

Potential Changes to Interest Rates

The European Central Bank may gain support for expected interest rate cuts as the industrial sector lowers sales prices after two months of increases. With lower energy prices reducing input costs, there is room for the ECB to adjust its monetary policy. The manufacturing PMI being just below 50 indicates a contraction, though only slightly. This suggests the sector is cautiously stabilizing. The production increases in Germany, France, Spain, and Italy carry significant implications. Growth based on output rather than temporary inventory changes indicates stability and suggests firms are fulfilling orders based on actual demand. We should also think about how production surged due to tariff concerns from the US. US buyers rushing to place orders in anticipation of tighter trade conditions has impacted the data. This can create temporary boosts in orders but may lead to a decline if buyers have overstocked. Those relying on flow-through data rather than isolated snapshots should brace for unexpected volatility. Lower input costs, primarily due to easing energy prices, have given manufacturers more flexibility. It’s not simply about cheaper energy; it affects overall costs and eventually product pricing. Early signs show a shift in pricing trends, with producers reducing sales prices in the past two months. This development could prompt the ECB to consider further interest rate cuts. Markets are already factoring in these adjustments, and policymakers now have additional support from the real economy.

Impact of Fiscal Policies and Market Dynamics

Scholz’s government has increased fiscal spending in important manufacturing areas, supporting the performance of Germany’s larger production firms. Traders must consider differing national policy responses when estimating firm-level earnings. Ignoring fiscal changes could lead to mispricing performance. Early adjustments may be rewarded in the market. This scenario means some producers, despite reporting increased production, could still have slim margins due to weak demand. So, while the PMI shows slight improvement, it doesn’t guarantee broader earnings growth—especially if inventory increases from export surges start to decline. Those monitoring profit guidance must check if input price reductions translate into operating profits or are absorbed by price cuts to maintain market share. A key effect of decreasing producer prices is the impact on policy expectations. We are seeing reduced cost increases being passed on, helping to support lower inflation projections. As pricing pressure decreases, the ECB may find it easier to lower rates. While this may already be somewhat anticipated, confirmation from industrial indicators adds credibility to this outlook. Misinterpreting these signals could pose risks for duration-heavy investments in the near future. It’s also important to note that early mover advantages could emerge in areas linked to Germany’s expansionary stance. Changes in Bund yields may indicate broader macroeconomic shifts. If investors reposition towards countries with stronger industrial recoveries than the EU average, this could subtly affect intra-EU spreads. Traders using forward curves or swaps with cross-border exposure need to assess this risk carefully. We expect that flow-based indicators, like export volumes, input cost trends, and rate expectations, will be increasingly important in June and July. These will now be viewed through the lens of fiscal movements and trade benefits. Long positions that benefitted from short-term order surges should be evaluated against retail and export orders for Q3. The outlook for Eurozone lagging investments appears more fragile than it did two quarters ago. Create your live VT Markets account and start trading now.

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The final manufacturing PMI for France in May 2025 rose to 49.8, up from 49.5. This improvement indicates modest growth and a slight enhancement from April, with increased output and nearly stable demand. Since February 2023, France’s manufacturing sector has been shrinking, with the PMI consistently below 50.0. The recent PMI value hints at a possible expansion in the near future, as it has improved over 2025. Output has increased for the second month in a row, and new orders are close to expanding, even though foreign demand has weakened since a recent peak. Global trade conflicts create ongoing uncertainty. However, European rearmament, supportive policies from the ECB, and regulatory easing in the EU may help reduce trade barriers. Business expectations have improved since late 2024, and France’s manufacturing labor market is recovering, with companies looking to hire more staff for the first time in two years. Better demand has led to growing backlogs, but price pressures are low. Input prices are rising due to more expensive raw materials, while competition is limiting the ability to raise output prices. The recent increase in France’s manufacturing PMI to 49.8 is more than just a statistic—it shows real progress. As the index approaches 50, it signals an end to more than a year of decline. Production metrics are improving for a second consecutive month, suggesting manufacturers are responding to current demand rather than just depleting inventories. The near-stabilization of new orders indicates domestic strength, but external orders still face challenges. Foreign demand, previously a help, has sharply declined. This is largely due to supply chain changes, weaker relationships with key partners, and cautious overseas buyers. Ongoing tensions in global trade complicate the chances of a quick recovery for export-heavy businesses. Despite this, some favorable policies might lessen these challenges. Supportive monetary policies are reducing borrowing costs, allowing producers to invest in capacity or automation. Some companies are taking advantage of this by hiring again or gradually reopening inactive production sites. While not happening in all sectors, those that are growing can clearly see the effects on backlogs and hours worked. Easier regulations in the EU are lowering operational hurdles, which helps maintain the momentum in new domestic business. Sentiment has improved since late last year, shifting from being defensive to more constructive planning. While we’re not back to the optimism of pre-2023, the outlook is brighter. However, there are still price challenges. Input costs are rising, but companies are finding it difficult to increase output prices due to strong competition. For now, margins depend on expanding volumes rather than raising prices or cutting costs. Even as material costs increase, final product prices remain steady. What does this mean for decisions in the coming weeks? A closer look reveals several trends. The growth in output and backlog suggests a potential for increased activity in shorter cycles. Consumer resilience is providing support for domestic demand, even if external orders fluctuate. Traders focused on French manufacturers should pay attention to order-book ratios and hiring trends, as these often indicate material flow changes before broader economic data reflects them. In conclusion, raw material pricing is especially important right now. Changes in commodity prices and energy costs could yield faster results, given how closely companies are monitoring their expenses. Manufacturing confidence is no longer stagnant, opening opportunities for anticipated inventory restocking or shifts among secondary suppliers. Looking ahead, it’s crucial to note that backlogs are increasing even with moderate pricing growth. This combination tends to reduce risks on both sides: a weak inflation threat alongside rising output possibilities. It favors strategic positions with solid cost assumptions. Movement in this area is no longer speculative; it’s data-driven and consistent, at least for the short term.

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Italy’s manufacturing PMI for May was 49.2, slightly below the expected 49.6. According to HCOB, output saw a small increase, ending a 13-month drop. Order books are getting closer to stability, helped by slight growth in exports. Input costs have fallen, and delivery times have improved. Italy’s manufacturing is almost stable, with the PMI just under the neutral point of 50. Although there was a slight decline from April, the signs indicate a cautious recovery after a long downturn. Output rose for the first time in over a year, driven by new clients and recovery in demand, particularly in European markets.

Turning Point In New Orders

New orders, however, continued to drop for the 14th month, but at a slower pace, hinting at a possible turning point. Export orders increased for the first time in over two years, boosted by stronger European demand. Domestic demand remains weak, especially in key sectors like auto and electronics. Employment declined slightly, due to voluntary departures and cautious hiring amid uncertainty. Reduced input costs, resulting from lower material and freight prices, suggest easing inflation pressures. Alongside stable output prices, this provides some relief to manufacturers, aligning with the eurozone’s disinflation trend. The outlook is cautiously positive, supported by a stronger euro, declining energy prices, and potential easing from the ECB. However, trade tensions pose risks, especially after the Prime Minister’s recent visit to the U.S. While the sector shows signs of stabilizing, the recovery remains uneven. The PMI reading of 49.2, just below neutral, indicates that the industrial sector is not shrinking as quickly as before, but it’s not expanding either. Although there’s a minor decline from last month, manufacturers are slowly emerging from a prolonged slump. Factory activity is tentatively rebounding, partly due to renewed demand from Europe, suggesting the worst of the contraction may be over. The most notable change is in output: production has increased after more than a year of decline. This rise seems to be driven by a few new orders from clients in nearby eurozone economies. However, domestic activity is still uneven. Key sectors like machinery and consumer electronics remain under pressure, suggesting that household spending and business investment in Italy are not strong. On the pricing front, firms have experienced some relief. Reduced transport and material costs have led to leaner inputs, and delivery delays have shrunk, easing supply chain pressures. These changes point to better cost control and reduced inflationary pressures within manufacturing inputs, even though final demand remains too weak to fully benefit.

Inflationary And Employment Trends

The rise in new export orders, the first increase in over two years, is an encouraging sign. Even though overall new orders are still declining, this growth hints that some foreign markets may be improving. If external demand remains strong and exchange rates are favorable, it could support further gains. Job figures require attention. Despite a softer decline, jobs are still being lost mainly through attrition and cautious hiring. This reflects firms’ hesitation to commit, likely due to uncertain demand in the latter half of the year. While this doesn’t suggest immediate risk, it indicates a defensive industrial sentiment. We view the slight increases in activity, along with falling input costs and controlled output prices, as signs of a sector nearing bottom. While there isn’t a significant surge, stabilisation appears to be occurring, aided by a weaker euro and declining energy prices positively affecting profits. The potential for looser monetary policy over the summer—especially given the ECB’s softer rhetoric—could lower borrowing costs and narrow credit spreads. This may provide medium-sized manufacturers with more flexibility. However, geopolitical instability, particularly regarding transatlantic trade, continues to dampen confidence for firms that rely heavily on North American partners. In terms of derivatives, macroeconomic hedging should reflect a slowdown in inflation, and selective exposure to European industrial demand might regain value. Short-term volatility in commodity-linked contracts may decrease as material and freight prices stabilize. Nonetheless, positioning should remain cautious while risks—especially related to policy shifts and external trade actions—are still highly unpredictable. It’s essential to monitor the differences between domestic and international demand metrics. If foreign demand continues to grow while domestic demand remains weak, it may widen the gaps across regional sub-industries. This could suggest the need for more precise allocation rather than broad-based trading strategies. Create your live VT Markets account and start trading now.

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Spain’s manufacturing sector saw growth in May for the first time since January. The HCOB Manufacturing PMI rose to 50.5, beating expectations of 48.4 and improving from April’s 48.1. This increase suggests better output and employment, with a slower drop in new orders. The PMI’s rise might indicate easing global trade tensions, and Spain’s lower dependence on the U.S. market compared to Germany or Italy helps too. Production picked up, with positive trends in demand and output thanks to improved sales conditions. Although new orders are still declining, the pace has slowed, suggesting stabilization. Companies are increasing their inventories of intermediate goods, expecting production growth to continue. Manufacturing price pressures have lessened as input costs fall, driven by lower raw material prices and reduced demand. This has led to lower output prices. Employment conditions in May remained stable, with a slight improvement due to increasing optimism and backlogs. Many companies are hopeful about the economy, buoyed by the European Central Bank’s monetary easing and Germany’s fiscal support, which could benefit the eurozone. However, U.S. trade policies introduce uncertainties that might affect global stability. In short, Spain’s manufacturing sector seems to be on the upswing. May’s data shows a rise in activity for the first time in months. The Purchasing Managers’ Index (PMI) has crossed the line between contraction and expansion at 50.5. This is not only better than expected but also a notable improvement over April’s figures for an industry that had been shrinking since January. Tracking the short-term changes reveals more than just vague hopes. Output and employment are up. While new orders are still falling, the decline is less steep. This suggests that the worst of the demand issues may be behind us. The uncertainty of foreign trade seems to be lessening, and Spain’s limited trade connections with the U.S. means it is less affected by U.S. policies than other European countries. Additionally, companies are building up their inventories of intermediate goods. This generally reflects a bet on increased future output, suggesting confidence in upcoming demand. It’s a proactive approach focused on meeting production targets rather than hoarding excess materials. Input prices are also falling, benefiting from cheaper raw materials and reduced global demand pressures. This drop is leading to lower selling prices, which suggests a more competitive pricing landscape ahead. Businesses might pass on cost savings due to necessity rather than choice. Employment is not stagnant either. Though changes are modest, the upward trend matters. It shows that companies are not just retaining staff but sometimes adding to their numbers, indicating more secure order pipelines. Backlogs are starting to form again, suggesting work is coming in more steadily than it did a few months ago. Business expectations are improving. Much of this optimism likely ties to expected rate cuts from the ECB, easing borrowing conditions across Europe. Additionally, supportive policies from Berlin seem to be providing external assistance. Together, these factors strengthen future projections and clarify demand models. However, risks remain. Changes in U.S. regulations could still pose a threat. Even if Spain is less exposed compared to others, global planning could still be shaken. Sectors relying on global supply chains or U.S.-denominated contracts may have to readjust delivery schedules or hedge more actively. As a result, we are keeping our risk models tight and paying closer attention to commodity flow data. Changes in prices and volumes may require recalibration, especially if broader eurozone momentum builds from this initial growth. While there are no guarantees, recent figures offer a more optimistic view than what we saw just a quarter ago.

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Switzerland’s economy grew by 0.5% in the first quarter, exceeding the expected 0.4%, according to the Federal Statistics Office. This growth is stronger than the previous quarter’s revised rate of 0.3%, up from 0.2%. The services sector played a key role in this economic growth. There was a significant increase in exports as companies shipped more goods to the US, anticipating President Trump’s tariffs.

GDP Growth Prediction

The 0.5% GDP growth for the first quarter is a clearer indicator of economic momentum than before. The prior quarter’s growth was adjusted from 0.2% to 0.3%, showing a slight improvement. While this isn’t explosive growth, the trend is positive and will influence our strategy moving forward. Exports were crucial in this growth. Businesses seemed to rush to ship their products to the US, expecting tariff changes from Trump’s talks. This kind of logistics activity is common, but the high volume indicates that their logistics teams were very active. If this uptick is just temporary, we might not see the same strong export numbers in the next quarter. The services sector also performed well. There are reasonable signs that a shift in demand after the pandemic, along with a stable currency and strong domestic spending, supported broad activity within this sector. The data doesn’t indicate a spike in a single area, which suggests that this growth trend is more reliable. This reliability helps in making short-term forecasts.

Monetary Policy Implications

What actions should we take based on this? First, the upward revision of growth may influence expectations regarding interest rates. Switzerland is still behind other countries in tightening monetary policy, but steady growth from trade and services means there is less urgency for policymakers to make immediate cuts. While we might not see sudden changes right away, this could provide some support for the yield curve, especially in short-term swaps. We should also keep an eye on volatility. As the export trend may slow down, there’s a possibility that businesses will need fewer hedges. Likewise, equity-linked derivatives from companies with high US exposure may see a shift in pricing due to weaker shipments. This could impact overall market volatility, affecting not just individual stocks. It’s important to remember that stability should not be confused with complacency, especially for assets linked to CHF rate spreads. By being cautious in areas where short-term expectations have stabilized, we can reduce our risk ahead of potential surprises in late summer, particularly if Q2 shows a drop in goods movement. Traders in Zürich are likely watching the stability of EUR/CHF closely. The wider European rate trends are shifting, but since Bern is taking a careful approach, short-term CHF trades look calmer. This opens opportunities for engaging in trades sensitive to market movements, especially before the Q2 results are fully factored into consensus views. In summary, this 0.5% growth rate, while modest, indicates that the economy is not stalling at the moment. Therefore, options priced for policy panic or a sharp decline in CHF might be overly expensive. These trades could be reconsidered or at least reduced. Create your live VT Markets account and start trading now.

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The US Dollar is facing renewed challenges, causing the USDJPY pair to erase recent losses. The market’s expectations for US interest rates match the Federal Reserve’s forecast of two cuts in 2025. Recent weak US jobless claims data contributed to a drop in the US Dollar, but the figures stayed below the cycle high of 260,000. In Japan, talks about cutting down on super-long bond issuances have weakened the yen. There is uncertainty about another rate hike, but expectations have grown due to rising Japanese inflation. The US-Japan trade deal and inflation patterns are crucial for the Bank of Japan. ### USDJPY Technical Movement On the charts, USDJPY shows some technical movements. On the daily chart, the pair rejected the 146.00 level and is nearing the 142.35 support zone. Buyers might enter the market here, while sellers will look to push lower towards 140.00. The 4-hour chart reveals a recent decline in the US Dollar following the jobless claims data. The 1-hour chart indicates a minor downward trendline, suggesting continued bearish momentum, with sellers eager to establish new lows. Key upcoming economic data includes the US ISM Manufacturing PMI, US Job Openings, US ADP, US NFP report, and Japanese wage data, along with US Jobless Claims figures. So far, softer US labor market data has put pressure on the US Dollar, erasing earlier gains in USDJPY. This has caused a new downward trend as traders adjust their pricing of interest rates based on the Federal Reserve’s 2025 guidance. While the claims data remains well below recent highs, it shakes confidence but doesn’t call for immediate policy changes. The message is clear: weak job data makes traders less interested in long positions for the dollar in the short term. ### Developments in Japan Japan has also contributed to market shifts. Officials are discussing reducing the issuance of long-term government bonds, which led to a slight overreaction in debt markets. As bond yields decreased, the yen also fell. Coupled with higher-than-expected inflation data, rate traders are reconsidering whether the Bank of Japan might implement another hike in the next two policy meetings. This change in expectations has begun to create some buying and selling flows in what was once a one-sided market. ### Current Trading Setup We see the USDJPY trading in a sensitive zone. On daily charts, the rejection above 146.00 corresponds with past supply, while the slow movement toward 142.35 suggests a region ready to be tested. Whether this becomes a base depends largely on how buyers respond at this level. Most traders view the 140.00 support as a significant breakpoint. There’s room to move, but it’s getting tighter. Shorter timeframes offer additional insights. The 4-hour candles show that following the jobless claims report, a series of lower highs have formed. While not drastic, this signals that sellers are taking advantage of bullish moments instead of waiting for breakouts. The 1-hour charts reflect similar pressure, with a descending trendline holding steady and no strong efforts to break upward convincingly. Traders are paying close attention to a busy economic calendar in the upcoming week. The US ISM Manufacturing PMI often sets the tone at the start of the month and is a good indicator of demand. We’ll also monitor the ADP private payroll figures — though erratic, it gives the market an early glimpse ahead of the NFP. If both indicators soften even slightly, it could strengthen the case for the Fed’s dovish stance. Additionally, if job vacancies continue to fall, it would signal diminished wage pressure — another point for dollar bears. On Japan’s side, weekly wage data might spark speculation. If earnings rise steadily, it allows Tokyo some political and policy flexibility. This is data the Bank of Japan will likely interpret as a reason to tighten conditions, even gradually. Persistent inflation increases the risk of mispricing. ### Conclusion As price action continues within this descending channel, we are approaching a strategically important moment. The current bearish trend isn’t aggressive, but it is consistent enough to build conviction. Until buyers can break this pattern with a solid reclaim of previous highs on lower timeframes, there’s little reason to expect upward movement. Those hoping for reversals will need better labor data or a stronger response from US policymakers against the dovish trend. As we enter another data-rich period, there’s significant downward pressure—both macro-wise and in market positioning. We’ll closely observe where weak support gives way to actual volume, as this will indicate new risk setups.

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The European session will present the final PMI readings for the UK and major European economies. Market pricing is unlikely to change unless these readings see significant revisions. During the American session, focus will shift to the Canadian Manufacturing PMI, the final S&P Global US PMI, and the US ISM Manufacturing PMI. The ISM report usually influences market movements, with recent soft data showing improvement. Market participants will also evaluate inflationary pressures.

Central Bank Activities

There will be several central bank speakers throughout the day. At 14:15 GMT, Fed’s Logan, a non-voter, will speak. This will be followed by ECB’s Lagarde and Fed’s Goolsbee, both voters, at 16:30 GMT and 16:45 GMT, respectively. At 17:00 GMT, Fed Chair Powell will address the markets, and BoE’s Mann, a voter, will wrap up the day at 21:30 GMT. The data we have suggests that much of the market movement may come from interpreting trends rather than unexpected figures. The Purchasing Managers’ Index for the UK and Europe should be confirmed, but we shouldn’t expect large pricing changes unless they differ significantly from the flash estimates. Traders should focus not just on these readings, but also on how companies manage hiring and inventory, as these factors can indicate broader economic changes in the coming months. The ISM data in the US carries more weight due to its long track record and historical impact on yield curves and risk assets when manufacturing figures shift. Recent soft readings have begun to rise, hinting at a potential reacceleration, especially as production components strengthen. For now, markets will be alert for any signs within pricing or supplier delivery times that could suggest ongoing cost pressures. It’s important to consider more than just the headline numbers.

Monetary Policy Signals

Looking at monetary policy signals, there will be a series of central bank comments later in the day. While not all speakers have the same market impact, the order of their remarks is important. Logan’s early comments may influence initial expectations, even if they aren’t as impactful this year. Lagarde’s speech will be closely watched, especially as the ECB approaches possible changes in guidance. Traders with euro exposure will likely focus on whether she supports expectations for rate cuts before summer. Later, Goolsbee and Powell will speak. Since Powell is the last Fed member to comment today, any market adjustments may happen late in the session. Powell has been a stabilizing voice lately, often countering overly optimistic views. If his language is more open-ended or if he discusses labor supply deeply, traders may need to rethink their views on terminal rate changes, even if those changes aren’t immediate. Mann will conclude the lineup, but markets will likely have already formed conclusions by then. Her comments can significantly sway GBP rates, especially if she diverges from the dovish stance of other members. If she expresses concern about persistent inflation, we might see shifts in short-term rate expectations, even if subtle. From a positioning standpoint, timing is critical. Instead of trying to predict each release, it makes more sense to evaluate how expectations will adjust afterward. Implied volatility has softened, which ironically increases the chance for sharp reactions if there are surprises. Additionally, options flows are already showing interest in hedging around Powell’s speech. For these reasons, we’ve moderately scaled back our exposure while extending the duration of some positions. It’s not just the content of the remarks that matters, but also the delivery and how close we are to pivotal points in policy. Situations like these call for a keen focus on tone, not just text. Create your live VT Markets account and start trading now.

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Eurostoxx futures dropped by 0.5% in early European trading, suggesting a gentle start to June. German DAX futures fell by 0.4%, while UK FTSE futures remained unchanged. The mood in the US markets is similar, with S&P 500 futures also down by 0.5%. Ongoing trade tensions weigh on the market, as reports indicate little progress between the US and China. Over the weekend, a former US president claimed that China had not kept its trade promises to the US. This sets a slow tone for equity futures in both European and US markets. We’re seeing a small decline across Eurostoxx and DAX, while the FTSE stays steady. S&P 500 futures are slipping too, reflecting worries over trade negotiations. Tensions between Washington and Beijing last weekend seemed to impact market sentiment, especially after Trump suggested that China wasn’t honoring its trade agreements. For those watching derivatives, it’s clear that short-term trading may remain tense. Major indices are slowly losing upward momentum, and this trend is seen in sector futures as well. When news turns negative, such as recent comments about trade agreements, institutional hedging tends to increase. This could widen spreads on short-term options and put slight downward pressure on implied volatility if declines continue without much trading volume. However, volatility is still low compared to past spikes caused by geopolitical events. This indicates that investors aren’t expecting a major escalation—at least not yet. The key takeaway is that there is potential in shorter-dated straddles, which haven’t adjusted to what appears to be a persistent downward trend. Adopting a defensive approach while liquidity is available could provide some protection ahead of next week’s central bank statements and manufacturing data. Looking across sectors, technology-related investments show some signs of fatigue, but it’s not alarming. The sector’s weight in major indices suggests its weakness is affecting broader futures, but there is still a mix of performance. Financial and energy-related futures are holding up better. Futures in the energy sector are reflecting stable crude prices, supporting this view. In the coming sessions, it’s important to monitor differences between major indices and underlying market signals from micro data. We are observing thinner order book depths in Nasdaq-linked futures, making the market more susceptible to sudden intraday swings. This could present opportunities for intraday traders or those managing delta-neutral strategies. What’s crucial now is how much market breadth returns, or doesn’t, as trading volumes rebuild after the bank holiday impact. Futures implied yields are starting to show a subtle upward trend. This might indicate that rate expectations are shifting after a period of stability. Although slow, yield curve steepeners in futures are starting to signal preparations for tighter credit conditions. The correlation between bonds and equities remains mildly positive, suggesting that equity traders are not viewing fixed income strength as a hedge—more like a side effect. Finally, keep an eye on movements in credit-default swaps related to highly-leveraged companies. The spread widened slightly on Friday, making it worth monitoring this week. If it accelerates, the cost of downside index options may rise, prompting dealers to rebalance. This generally leads to exaggerated short-term movements in the underlying market. While subtle, these trends rarely go unnoticed by professional desks for long.

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