May went out with a whimper last week as European markets finished lower on concerns about the deadlock in Greece, as well as a disappointing week for US stocks which also weighed on sentiment. On the data front US markets continue to find upside progress challenging, particularly in light of comments from Fed Chief Janet Yellen at the end of the previous week that the Fed expected to raise rates sometime in 2015, given the expectation that the economic soft patch in Q1 would be transitory. With some end of week volatility in Hong Kong and Chinese markets, investors appears to be treading carefully with respect to taking on large amounts of new large scale exposure to equities, particularly given the heavy nature of this week’s data releases. The latest Chinese manufacturing PMI data released earlier this morning served to underscore concerns about whether the Chinese will be able to hit their 7% GDP target for this year. The final HSBC and official manufacturing PMI numbers for May came in at 49.2 and 50.2 respectively, raising the question as to how long it will take for the recent easing measures taken by Chinese authorities to filter down into the economic numbers. Claims and counter claims with respect to the closeness of some form of deal between Greece and its creditors continued to go back and forth last week, with the end result that, despite yet another looming deadline, the two sides appeared to remain as far apart as ever. With Greece due to make the first of four payments to the IMF this coming Friday the prospect of any form of agreement between now and then looks fairly slim. This belief appears to be reinforced by the rhetoric coming out of Athens over the weekend, after Greek Prime Minister Alexis Tsipras accused bailout monitors of making absurd demands on his country. With the Greek banking system continuing to haemorrhage cash to the tune of another €800m in the last two days, it surely can only be a matter of time, in the absence of any agreement, before capital controls get implemented, irrespective of whether the first €300m gets paid to the IMF on Friday, which some in Greece have said will get paid on time. Unfortunately for Greece any prospect of increased flexibility amongst its EU creditors was somewhat scuppered by the recent Spanish regional election results last month, which saw widespread gains for anti-austerity parties. This is likely to make Spanish politicians in particular unsympathetic to Greek demands for leniency on any new terms, given they have a general election later this year. In Europe there has been concern that the economic rebound seen in Q1 might be running out of steam in Q2, with the final manufacturing May PMI numbers for Spain, Italy, France and Germany expected to show continued strength in Spain, but some signs of tiredness elsewhere. Spain is expected to come in at 54.4, while Italy is expected to weaken to 53.1, with France at 49.3 and Germany 51.4. In the UK, after the conclusive electoral result at the beginning of May the sharp slide to 51.9 we saw in April manufacturing PMI, is expected to show a decent recovery to 52.7, as the cloud of uncertainty that had weighed on some parts of the UK economy dissipated. As far as this week’s US data releases are concerned the focus remains on the weakness of the US economy and its ability to sustain an adjustment in Federal Reserve policy later this year. US central bankers continue to play down the prospect of any delay to a potential rate rise into next year. While Friday’s US Q1 GDP adjustment was pretty much as expected to the downside, any optimism about the resilience of the US economy continues to be of the kind of one step forward and two steps back variety. In this context today’s core PCE numbers for April (exp: 1.3%) are important in the context of inflationary pressures, given it is the Fed’s preferred inflation targeting measure. Personal spending is also expected to remain subdued with a decline from 0.4% in March to 0.1% in April. The unexpected sharp fall in May’s Chicago PMI was all the more surprising given the rebound seen in April. The fact is in three of the last four months manufacturing activity has contracted sharply, and if the weakness seen in Friday’s Chicago numbers ripples out into today’s ISM numbers, questions will once again be raised about the effect that the strength of the US dollar and the slide in the oil price has had on the US economy. Along with the latest US employment report, Greece IMF payment we finish off a busy week with the latest OPEC meeting and it seems quite likely that any expectations of a change in production quotas are likely to be misplaced. Given the reduction in US rig counts it is highly likely that the Saudi’s will want to keep the pressure on as the squeeze in margins continues. EURUSD – having posted a low of 1.0820 in May the dropping briefly below the 1.0845 61.8% retracement level the euro does continue to remain under pressure, but the bullish candle for April remains intact. We need a move back above the 1.1050 level to stabilise and argue for a move back towards 1.1220. GBPUSD – despite the losses seen in recent days, while the pound is able to hold above the 1.5190/1.5200 area the bias remains for a rebound back towards the 1.5440/50 area. EURGBP – the rebound seen at the end of last week suggests that further gains are possible towards 0.7230 initially and a return towards 0.7300. For this to unfold we need to hold above 0.7120. USDJPY – having broken above the 2007 highs at 124.20 the US dollar continues to look well supported, as it looks to close in on the 125.65 level, which we last saw in December 2002. Support remains down at 122.00, the previous highs, as well as the recent range lows between 118.30 and 118.65. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.