The USD has slowly, but surely continued its rebound while equities on either side of the Atlantic fell for a second consecutive day. In Europe, all equity sectors ended the day in negative territory while loses in the US were led by the energy and materials sectors.

Mixed US data and a soft lead from Asian, reflecting concerns over the global growth outlook, appear to have been the major contributors to the risk off sentiment overnight. Concerns over the global growth outlook were also compounded by weakness in commodities. While oil prices ended the session practically unchanged, commodities in general had a negative night. Iron ore dropped 5.2%, Copper loss 1% the GS metals index fell 2.5%.

The USD initially lost a bit of ground following the softer than anticipated ADP report, but a better than expected ISM services print helped the currency move higher once again. Looking at the leader board, the big dollar has outperformed all G10 and emerging market currencies with the BRL the only exception. Gains in BRL were boosted by a $44bn civil lawsuit on BHP and Vale following the deadly dam collapse at their mine last year.

The ADP report showed that private payrolls rose 156K in April, below the195k consensus. This was the lowest print in 3 years and while the lag relationship with US non-farm payrolls numbers is well known, for many the big miss still raises downside risk for Friday’s payrolls numbers. The April ISM services print alleviated some of these concerns with the headline composite index rising to 55.7 from 54.5 and above the 54.8 consensus. Importantly the employment index accelerated from 50.3 to 53 and there was also a healthy jump in new orders (59.9 from 56.7).

Of note as well, March factory orders came in above forecast at +1.1% m/m (consensus +0.6%) and the trade deficit for the same month narrowed to $40.4bn from $47bn. Both data prints suggest there will be an upward revision to US Q1 GDP number due for release 27 May.

Looking at other currencies performance overnight, the CAD was the biggest lower against the USD following news that Canada posted its largest trade deficit on record in March. The NZD and AUD are down 0.46% and 0.37% against the USD and the EUR is practically unchanged at 1.1489.

Last but not least, 10Y US treasury yields are about 3bps lower relative to Sydney’s closing levels and 10y Bunds ended the day practically unchanged at 0.202%.

Coming Up

We have a relatively busy day of data releases in Australia with new home and retail sales figures along with trade balance all out this morning and all for the month of March.

In terms of the trade data, NAB is looking for some reduction in the March trade deficit to $3.0bn from $3.4bn in February with higher levels of iron ore exports the main driver for the improvement in the number. As for retail sales, our economists expect a moderate growth of 0.2% for the month up from a flat outcome in February.

The data highlight in Europe comes from the UK with the services PMI for April completing the last important piece of information for the BoE ahead of the publication of its May Inflation Report. Market expectations are practically unchanged from the previous month (53.5 vs 53.7 prev), however if the Manufacturing and construction prints this week are any guide, there could be downside risk to the number due to  uncertainty surrounding the Brexit referendum.

Ahead of the all-important US payrolls report on Friday, tonight we get weekly jobless claims where a further rebound from the Easter break induced drop is expected ( 260k vs 257k prev).

As for Fed speakers this morning Fed Kashrari is speaking in Rochester, but if his recent speeches are any guide his comments are more likely to be focused on regulatory issues rather than monetary policy. Potentially of more interest, tonight Fed Bullard speaks at an economic summit with the conference title suggesting his presentation is likely to be focus on economic forecasting.

Overnight

On global stock markets, the S&P 500 was -0.60%. Bond markets saw US 10-years -2.11bp to 1.78%. On commodity markets, Brent crude oil -0.16% to $44.9, gold-0.8% to $1,281, iron ore -5.2% to $60.09. AUD is at 0.7456 and the range was 0.7447 to 0.7517.

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• Markets Today: 5 May 2016 (PDF, 1MB)

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