· Both US bonds and equities have increased in value month-to-date, by 0.52% and 1.14% respectively, leaving foreign investors in US assets probably under-hedged relative to their benchmarks. US asset indices have gained further since the preliminary estimate last week and this has flipped the GBPUSD signal also into a ‘buy’ despite the generally good performance of UK assets.
· Today’s USD selling estimate is not particularly strong by historical standards, measuring around 0.3 standard deviations on average across all pairs. This is because US asset price gains have been relatively small and good performance of bonds and equities elsewhere will probably lead to offsetting USD buying by US-based global investors. The signal to buy AUDUSD is strongest, around 0.4 standard deviations, owing to poor performance of MSCI Australia.
· Markets will probably be paying attention to Riksbank and Fed comments as well as Canadian GDP and US Chicago PMI and pending home sales as potential market drivers ahead of the 4pm London time fix today.
This means the index investors will be buying local currency vs the MSCI basket.
In terms of rebalancing the UK share market was the best performer +4.38% while the Australian share market was the worst performer in May -4.29%.
This simply means buy AUD sell GBP.