The US dollar has begun the new week on firm footing. It remains, though, largely in the ranges seen in the second half of last week. Sterling is the notable exception.  except sterling.  Last week’s sharp downside momentum has continued, pushing the sterling to $1.52.  The softer than expected manufacturing PMI gave the bears cover, even though it improved from 51.8 to 52.0, the market had expected a 52.5 reading.

The dollar initially approached last week’s high, but stopped about 10 bp shy (near JPY124.35). The big jump in Q1 capital spending (7.3% vs. consensus of -0.2%) suggests an upward revision to Q1 GDP and provides another argument against expecting additional stimulus.
The euro finished last week a little above $1.0980, but was sold off immediately as Asian markets opened.  The lack of substantive progress over Greece weighed on sentiment.  It fell about half a cent before recovering to almost $1.0970 before European traders took it back down and it briefly traded below $1.09.  Last week’s low was set near $1.0820.
The euro zone manufacturing PMI was reported at 52.2.  The flash for 52.3 after a 52.0 reading in  April.  The reason for the downward revision from the flash appears to be Germany.  Its manufacturing PMI was revised to 51.1 from 51.4.  France showed a slight improvement from its flash reading.  It rose to 49.4 from 49.3 and 48.0 in April.  Although still below the 50 boom/bust, it is the best reading since last May.  Italy and Spain surprised on the upside.  Italy’s manufacturing PMI rose to 54.8 from 53.8 in April.  The consensus had feared a small down tick.  Spain’s PMI rose to 55.8 from 54.2.  The consensus had forecast a 54.5 reading.
The local and regional elections in Italy reaffirmed Prime Minister Renzi PD Party.  It appears to have carried five of the seven regions.  The Northern League held on to the Veneto region.  A split within the PD cost it Liguria, while winning over Campania.   Still the PD vote (~23%) was well shy of the nearly 41% it garnered in last year’s  European Parliamentary election.
Peripheral European bond yields are firmer, and Italy’s 5 bp rise is slightly more than Spain’s 3 bp increase, but the both bourses were off about 0.25% Monday morning.   The Dow Jones Stoxx 600 is off fractionally.  Health care was the main sector showing strength (+1.0%), while materials and energy were drags.  Oil prices are lower  ahead of the OPEC meeting later this week.
Chinese stocks rallied 4.7%, as last week’s hiccup is a distant memory.  The official manufacturing PMI came it at 50.2 from 50.1, while the service PMI slipped to 53.2 from 53.4.  The HSBC manufacturing PMI came in a 49.2 from 49.1.  There is much interest in the government’s plans to address the local government indebtedness.  Reports suggest it may expand plans to swap local government loans into bonds.  Such a program is already underway for CNY1 trillion.   MSCI is to decide on June 7 whether to include A shares in its global indices.
The Reserve Bank of Australia meets tomorrow.  The consensus expects a stand pat policy and the rise in building approvals (4.4% in April) and the manufacturing PMI (52.3 from 48.0) serve to reinforce such expectations.
There is a full slate of US economic reports today, but the highlight will be the jobs report at the end of the week.  Today, April personal income and spending figures are on tap.  This data includes the Fed’s preferred (targeted) inflation measure, the core PCE deflator.  It was 1.3% in March and the consensus expects an unchanged reading, though there is a modest risk that it rises to 1.4%.  April construction spending will be reported and it is expected to recoup in full the 0.6% decline in March.  The ISM May manufacturing survey will be reported and the consensus calls for a small increase in the headline (52.0 vs 51.5) and prices (43.0 vs 40.5).  Taken as a whole, the data points to a gradual recovery from the contraction in the economy in Q1.  The Fed’s Rosengren (non-voter) and Vice-Chairman Fischer speak in the North American morning.