While US and European equity markets by and large gained ground last month yesterday’s late afternoon selloff tells us that sentiment still remains fragile at best. The FTSE100 at one point looked poised to eke out its fourth monthly gain in succession before a late ICM “Brexit” telephone and on-line poll gave the “Leave” campaign a three point lead, in contrast to with previous similar polls, and sending it and the pound sharply lower.

This is likely to be a familiar theme between now and voting day with every poll showing a “Remain” lead prompting a sterling bounce and a “Leave” lead prompting some sterling weakness.

Despite the late decline yesterday afternoon European stocks still managed to close near to their recent multi week highs, however given recent historical precedent June does have a habit of seeing significant stock market underperformance.

Economic data has continued to come in fairly mixed on both sides of the Atlantic with yesterday’s latest US data continuing to paint a mixed picture for the US economy. Personal spending in April jumped to its highest level since August 2009, rising 1% and giving extra ammunition to those hawks on the FOMC keen to pull the trigger on another 25 basis point rise to the Fed funds rate. Ultimately the Fed will have to weigh up the risks of hiking when there is so little evidence of a pickup in a sector that is one of the more highly waged and skilled parts of the US economy. On that basis June seems way too soon and Fed Fund futures would seem to agree dropping to a 24% probability of a move in June.

Unfortunately for the hawks the manufacturing sector is having a pretty torrid time of things as the latest Chicago PMI followed all the previous regional manufacturing surveys by dropping into contraction in May. With the Dallas Fed manufacturing survey also following suit it doesn’t bode well for today’s ISM manufacturing number for May.

Market expectation is for a reading of 50.3, down slightly from 50.8 in April. This seems highly optimistic given recent related data as does the latest Markit manufacturing number estimate of 50.3. It wouldn’t surprise to see both or either show contractions in activity with a drop below 50 on the basis of recent data.

Before we get to the US data, investors will get to wade through a host of manufacturing PMI reports from around the world first starting with the latest Chinese and Japanese numbers for May.

It wasn’t any surprise to see the latest Japanese number stay in contraction territory firming only slightly to 47.7 from 47.6 previously, and the recent improvement seen in Chinese data still seems to suggest that any recovery there remains a struggle.

The latest Chinese manufacturing PMI for May came in unchanged at 50.1, while the Caixin number stubbornly remained in contraction territory, weakening further to 49.2 and remaining where it has been since March last year.

If there was a silver lining in Asia trading it was the latest Australian GDP number which blew away expectations coming in at 1.1% in Q1 and 3.1% year on year begging the question as to why the RBA even felt it necessary to cut rates at its recent meeting. It makes it highly unlikely that the RBA will cut rates at next week’s meeting. The expansion was helped by a decent export performance.

In Europe, while France has continued to underachieve in its manufacturing sector, with the recent fuel blockades unlikely to help matters in the coming weeks, a reading of 48.3 is expected here, we have seen the latest German, Spain and Italian numbers hold above the 50 levels quite comfortably, though they have been slowing on a month on month basis.

Spain and Italy are expected to show readings of 52.6, 53.5, both down on April, while German activity has started to improve with a reading of 52.5 expected, up from 51.8.

Last month in the UK we saw the manufacturing PMI drop into contraction territory for the first time in three years, and expectations are for it to stay there in May, albeit with a slight uptick to 49.6 from 49.2.

The weak readings seen in April have raised concerns that economic activity in Q2 could well stagnate as businesses hold back from new activity ahead of this month’s referendum vote. If we see similarly weak numbers for construction and services repeated in this week’s May numbers then we could well see speculation about a possible Bank of England rate cut start to get more airplay than at any time in the last twelve months.

EURUSD – continues to come under pressure with support near the 200 day MA at 1.1100, as well as trend line support at 1.1040 from the December lows. While above these key levels the current uptrend should remain intact with a move back through 1.1250 needed to stabilise, and point the way to a return to the 1.1400 area.

GBPUSD – having failed to gain traction near the 1.4700 area the pound slid back yesterday raising the prospect of a move towards last week’s low at 1.4420 after a late afternoon sell-off. A break below 1.4420 could well see a move back towards the May lows at 1.4330.

EURGBP – yesterday’s failure to get below the previous lows at 0.7560 has seen a sharp rebound, through the 0.7650 area, which could well extend towards the 0.7720 area, and possibly even the 0.7800 area.

USDJPY – having broken through the 110.50 level we could well see a move towards the 113.00 area, but we need to push through 111.25 first. A move back below 110.50 retargets support at 108.70.

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