Markets focus on the PMIs slowdown ahead of the Bank of Canada rate hike

It is no surprise that the US dollar ticked higher in Europe early Wednesday, as markets are again focused on global inflation. We can assume the 50-day exponential moving average has capped further decline if today's dollar index ends on a positive note. 

Data released earlier Wednesday showed China's factory activity contracted less sharply than expected in May. This is because the Caixin/Markit Manufacturing Purchasing Managers' Index rose to 48.1, up from 46.0 in April, its lowest level in 26 months. May's figure indicated the second steepest decline in two years, pointing to a fragile recovery as it is still below the 50-point threshold that separates growth from contraction. With a new month just starting, we already know that economic growth in Europe and the UK is slowing due to higher prices and disruptions in supply chains. This is due to the Russian invasion of Ukraine and the Chinese lockdown.

Events of today

Even though the manufacturing PMIs for May are expected to be weaker, they don't fully reflect the disruptions the industry has been experiencing. The manufacturing PMI in Spain, Italy and France is predicted to weaken to 52, 53.6 and 54.5, respectively. At the same time, it is expected to slightly rise to 54.8 in Germany. The UK will also see a similar decline from 55.8 to 54.6. ISM manufacturing PMI is predicted to fall to 54.5 in May from 55.4. 

We also get another glimpse of how tight the US labour market is with the latest April JOLTS data. This is expected to show that job vacancy fell to 11.3m in April, down slightly from March's 11.5m.

Canada's inflation rate rose to 6.8% in the most recent CPI report, its highest level since 1990. With unemployment at 5.2%, the Bank of Canada will likely consider further tightening its monetary policy by increasing interest rates from 1% to 1.5%.

The US labour market remains one of the bright spots of the economy's recovery. With the ADP report due tomorrow and the non-farm payroll numbers due on Friday, the Federal Reserve appears unfazed about accelerating its tightening program.

Later in the session, the American Petroleum Institute will release its weekly estimate of the US crude oil supply.