MORNING BID-Yuan bulls steal the show

May 31 - A look at the day ahead from Danilo Masoni.

With London and Wall Street closed for holiday action on markets will most likely remain confined to Asia.

The yuan in fact was the big mover overnight with the bulls pushing its value against a trade-weighted basket of currencies to a 5-year high and adding further pressure on exporters in the world’s No.2 economy.

That spurred fresh verbal intervention by local policymakers as data showed China’s factory activity growth may have peaked.

Joining those cautioning against excessive speculation was the former foreign exchange regulator Guan Tao who spoke of rising signs of “cyclical herding” in the forex market. Against the dollar the yuan hit a fresh 3-year high before paring all gains for the day.

Trade in other currencies was relatively quiet with short bets against the dollar hitting a 2-1/2 month high. In equities, Asian shares gained but stayed within recent ranges and in Europe, indexes were set for a mild pull back after last week’s record close. Benchmark bond yields too didn’t look eager to break new ground with even volatile Bitcoin seemingly lifeless.

The quiet mood was reflection of the festivities but also of investors sitting on the sidelines before an action packed week for U.S. data ending with much-awaited U.S. May payrolls data on Friday. After April’s shock, another disappointment could put to rest, for the summer, any lingering concerns the Fed could pull the taper lever on its massive stimulus earlier than expected.

Finally, gold prices tested four month highs, supported by concerns in global inflation, revived last Friday by a stronger than expected rise in U.S. consumer price for April. Inflation watchers will also keep an eye on German CPI data due later on.

Key developments that should provide more direction to markets on Monday:

* China’s factory activity grows at slightly slower pace as raw materials costs rise

* Japan’s April factory output rises on capital goods demand

* Riksbank Governor Stefan Ingves

* German preliminary CPI

* OECD Economic Outlook 2021

* Emerging markets: central bank meetings in Israel and Ghana

Reporting by Danilo Masoni