MARKET WRAPS
Watch For:
Services PMI for eurozone, Germany, France, Italy, UK; EU PPI;
Germany foreign trade; UK official reserves; trading update from
Naturgy
Opening Call:
Shares seem poised for a mixed open in Europe on Monday after
strong U.S. jobs data. In Asia, stock benchmarks were mostly
higher; Treasury yields mostly advanced; the dollar gained ground;
oil rose after Saudi Arabia said it would make a voluntary cut of 1
million barrels of oil a day; while gold declined.
Equities:
European stocks could start off mixed on Monday, following data
that showed a larger-than-expected increase in U.S. nonfarm
payrolls in May.
"Much stronger-than-expected US job creation data points to a
robust economy even if the unemployment rate rose to a
higher-than-expected 3.7%," IG said. Payrolls rose 339,000 in May,
higher than the 190,000 increase forecast by analysts in a WSJ
survey.
The Friday report was the last monthly jobs snapshot before the
Fed's June meeting.
Some officials have indicated that they would support halting
rate increases to study how the economy is handling the 10
consecutive increases leading to this point. Wall Street has
largely bought that rhetoric. Market odds for a June hike more than
halved since last week, according to CME Group.
But Friday jobs data also underscored the prospect that if
officials do tap the brakes, they could also throttle up again
later this summer. Two-year Treasury yields rose to 4.501%, up from
4.339% Thursday, reflecting a greater perceived likelihood that the
Fed could decide to raise rates again, or to hold them at high
levels for longer than investors expected.
Even so, money managers remain mostly unfazed. The Cboe
Volatility Index, a measure known as Wall Street's fear gauge, hit
its lowest level on Friday since 2020.
"Investors know we're in the latter innings of the game"
regarding interest-rate increases, said Ronald Temple, chief market
strategist at Lazard. "My view of the risk of recession has
definitely gone down in the last four to five weeks."
Forex:
The dollar was firmer in Asia amid higher Treasury yields. The
dominant macroeconomic story is the huge amount of U.S. Treasury
issuance expected, following the debt ceiling being suspended,
possibly to the tune of US$1 trillion, said RBC Markets.
This is likely to push up U.S. yields in the near term, and
given the consensus of upside pressure on interest rates, this
implies the dollar should remain supported, it added.
However, after a strong run since mid-May, the dollar is facing
headwinds from Fed officials suggesting a "skip" in June may be
appropriate, said Capital Economics.
Bolstering the argument for Fed officials to stand down later
this month is the moderation in wage growth and the rise in the
unemployment rate for May, along with the downbeat ISM survey, it
said, adding that the data is "consistent with labor market
conditions and price pressures easing."
However, it said the CPI data to be released on the eve of the
FOMC decision later this month "could still throw a spanner in the
works."
Bonds:
Treasury yields advanced on higher-than-expected U.S. employment
data, which also boosted expectations of a rate increase by the Fed
this month.
Fed-funds futures traders priced in a 25.2% probability the
central bank will lift its benchmark interest rate by 25 basis
points at its June 13-14 policy meeting, according to the CME
FedWatch tool. A week ago, the market had priced in a roughly 64%
probability of a quarter percentage point rate hike.
Fed officials this week have indicated that they may hold off on
raising rates at their June meeting while reserving the ability to
lift at subsequent meetings if warranted.
"Robust job gains relative to expectations reflect ongoing
peculiarities in the post-pandemic U.S. economy. However, the
uptick in the unemployment rate and moderation in wage growth
together signify progress in rebalancing the labor market. This is
required to bring inflation back towards target," said Goldman
Sachs Asset Management.
"We continue to expect a pause in Fed actions going into 2024,
but further signs of economic and inflation resilience mean there
is still potential for another rate hike this summer," it said.
Energy:
Oil futures were higher after Saudi Arabia on Sunday announced a
voluntary output cut for July on top of previously announced curbs
amid concerns over slowing global energy demand.
OPEC+'s "moderately bullish meeting partly offsets some bearish
downside risks to our December 2023 price forecast of $95/bbl,
including supply beats in Russia, Iran, and Venezuela, and downside
risks to China demand, " Goldman Sachs said.
The outcome of the meeting reinforces Saudi Arabia's "uneasiness
with the level of short positions in the market rather than
signaling concerns around demand outlook," said Jefferies.
"The open-ended part of the measure was likely put in place to
discourage future short positioning," it said.
Metals:
Gold futures dropped, pressured by a stronger than expected U.S.
jobs report, but prices for the metal held onto a modest gain for
the week to post their first weekly rise in about a month.
Gold was "almost in the clear" as a couple of Federal Reserve
doves had markets convinced that policymakers would skip a June
rate hike, said Oanda.
If the jobs data had cooperated, "some traders were making the
case that they might even be done," it said. However, the U.S.
economy is "too resilient and that should keep the risk of more Fed
tightening on the table."
---
Copper was down after recording its first weekly gain in seven
weeks last week.
ANZ said the gain was mostly due to improved sentiment across
commodity markets, following the signing of a deal to lift the U.S.
debt ceiling.
They reckon that the metal's supply issues are likely to
continue, noting that Chile's copper production declined more than
5.0% on month in April.
---
Iron-ore futures were higher in early China trade, extending a
broad rebound trend since late May.
SDIC Essence Futures reckons the steel-making commodity may be
able to sustain its recovery in the coming weeks. It pointed out
that a local city government in China has released new property
purchase support measures, which could boost real-estate sales and
raise the property sector's steel and iron-ore demand.
"Given the previous price correction has reflected most negative
factors, iron ore could rebound from current levels in the near
term," it added.
TODAY'S TOP HEADLINES
Saudi Arabia Cuts Oil Output After OPEC Members Clash Over
Quotas
VIENNA-Saudi Arabia said Sunday it would cut 1 million barrels
of oil a day as part of a deal between OPEC and its allies after
one of the most contentious production meetings in recent years
amid concerns over slowing global energy demand.
Saudi Arabia said the output cut was for July and on top of
previously announced curbs, which would be extended until the end
of 2024. The United Arab Emirates and some other large producers
also extended their previously announced cuts.
Military Leaders Warn U.S.-China Divide Threatens to Bring Down
'Iron Curtain' in Asia
SINGAPORE-With the U.S. and China trading accusations over
strained ties, Asia-Pacific defense officials found a common voice
urging the two powers to talk more and warning of the heightened
risks of the strained relationship spiraling into a direct
conflict.
A senior defense official from the Philippines warned that the
great power tension-if left unchecked-could bring down an "Iron
Curtain" across Asia.
VW Is on a Hunt for Resources to Remove China From Its EV
Batteries
BERLIN-Volkswagen is searching the world, from Canada to
Indonesia, for supplies to make the batteries in electric vehicles
it sells in the U.S. and Europe less dependent on Chinese
components, a senior VW executive said.
PowerCo, a subsidiary VW created last year, is leading the
company's search for natural resources and other critical battery
ingredients. Ultimately, VW wants to secure its own supplies for
battery plants outside China and not have to rely on Chinese
suppliers for battery materials, most of whom are in China, VW
board member and technology chief Thomas Schmall told The Wall
Street Journal.
Ukraine's Zelensky: We Are Ready for Counteroffensive
ODESA, Ukraine-Ukrainian President Volodymyr Zelensky said he
was now ready to launch a long-awaited counteroffensive but
tempered a forecast of success with a warning: It could take some
time and come at a heavy cost.
"We strongly believe that we will succeed," Zelensky said in an
interview in this southern port city as his country's military
girded for what could be one of the war's most consequential phases
as it aims to retake territory occupied by Russia.
Ukraine-Backed Troops Capture Russian Soldiers in Cross-Border
Foray
KYIV, Ukraine-A fresh incursion into Russia's Belgorod region by
Ukraine-backed troops on Sunday, who said they seized territory and
captured two Russian soldiers, added to signs of vulnerability in
Russia's defenses on its own territory ahead of a major expected
offensive by Ukraine aimed at taking back land occupied by
Moscow.
Belgorod regional governor Vyacheslav Gladkov said fighting was
taking place with enemy troops in the border village of Novaya
Tavolzhanka, where authorities had sought to evacuate residents
following heavy shelling by Ukrainian forces. "Battles are ongoing
right now," said Gladkov, adding: "I hope they are all
destroyed."
A Month of Russian Missile Attacks Leaves Kyiv Residents on
Edge
KYIV, Ukraine-Just four minutes passed between the wail of the
air-raid siren and the moment a Russian Iskander missile slammed
into a courtyard outside a Kyiv hospital where desperate families
were hoping to find shelter.
The predawn attack on Thursday killed two women and a child as
they and a group of at least a dozen people kicked and banged on a
door leading to the hospital basement. A guard on duty had fallen
asleep, authorities later said.
Turkey's Erdogan Appoints New Cabinet, Signaling Economic
Shift
ISTANBUL-Newly re-elected Turkish President Recep Tayyip Erdogan
introduced a new cabinet that changed the leadership in the areas
of foreign policy and security and signaled a shift in economic
policies that have pushed the country to the brink of financial
instability.
In a televised speech Saturday evening, hours after he was sworn
in for another term as president, Erdogan said he was reinstating
Mehmet Simsek as finance minister. Simsek, who previously served as
finance minister and deputy prime minister under Erdogan, is a
symbol of a time when Erdogan adopted more-conventional economic
policies earlier in his 20-year run ruling Turkey.
Incoming Twitter CEO Hires Executive From NBCUniversal
Linda Yaccarino is expected to take over as chief executive of
Twitter on Monday, according to a person familiar with the
situation, and has tapped one of her top lieutenants from
NBCUniversal to join her.
Joe Benarroch is taking on a senior business operations role at
the social-media company, according to a memo Benarroch sent to
NBCUniversal colleagues.
Write to singaporeeditors@dowjones.com
Expected Major Events for Monday
06:00/GER: Apr Foreign Trade
06:30/SWI: May CPI
07:00/TUR: May PPI
07:00/TUR: May CPI
07:00/SVK: 1Q Labour Force Sample Survey: Employment &
unemployment
07:00/SVK: 1Q Average monthly wage of employees
07:00/CZE: 1Q Wages
07:15/SPN: May Spain Services PMI
07:45/ITA: May Italy Services PMI
07:50/FRA: May France Services PMI
07:55/GER: May Germany Services PMI
08:00/EU: May Eurozone Services PMI
08:00/UK: May UK monthly car registrations figures
08:30/UK: May UK Official Reserves
08:30/UK: May S&P Global / CIPS UK Services PMI
09:00/EU: Apr PPI
19:31/IRL: May Ireland Services PMI
23:01/UK: May BRC-KPMG Retail Sales Monitor
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(END) Dow Jones Newswires
June 05, 2023 00:15 ET (04:15 GMT)
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