Market Wraps
Watch For:
Factory Orders for April; May Global Services PMI
Today’s Top Headlines/Must Reads:
– Wall Street Backs Off Bets on Fed Rate Cuts
– Commodities Slide as Investors Bet on Economic Slowdown
– Saudi Arabia Cuts Oil Output After OPEC Members Clash Over Quotas
– China’s Caixin Services PMI Rose in May
– Big American Companies Wonder: When Will China Bounce Back?
Opening Call:
The S&P 500 on Monday was looking to consolidate at its best level since last August, on the removal of debt default fears and hopes that the labor market shows an economy that can avoid a sharp slowdown in the face of the Federal Reserve’s inflation battle.
SPI Asset Management said “markets appear poised to ride last week’s upward momentum as bubbly risk appetite finds a comfort pillow in hopes for a U.S. soft landing after Congress approved a debt ceiling deal and as bullish sentiment coalesces around June skip by the Fed.”
Traders are now pricing in a 78% chance that the Fed will leave interest rates unchanged at a range of 5% to 5.25% after its meeting on June 14.
The market’s jump to fresh highs for the year triggered a positive start to the week in Asia, where sentiment was also supported by news that China’s services sector grew by more than expected in May.
Oil prices rose after Saudi Arabia said it would trim its production by 1 million barrels a day.
Global markets were mixed. The Stoxx Europe 600 was close to flat. Shares rose in Hong Kong and Japan, and edged up in mainland China.
Stocks to Watch
C3.ai stock fell close to 4%, while Palantir Technologies was 1.6% lower as AI-focused companies remained in focus following the recent surge higher.
Caesars Entertainment rose more than 4% in premarket trading, building on the 7.7% gains it made Friday.
Chevron, Exxon and Occidental Petroleum saw modest gains premarket, after a weekend production cut by Saudi Arabia boosted global oil prices.
Natuzzi’s first-quarter revenue plummeted 27%, which the company said reflected a slowdown in the U.S. and China, two of its main markets. Shares fell 9.8% in after-hours trading.
Lyra Therapeutics insiders purchased a higher stake in the company. Shares rose 9% in aftermarket trading.
Nvidia retreated more than 1% premarket. Shares in rival Advanced Micro Devices also slipped.
Palo Alto Networks will join the S&P 500 benchmark, replacing Dish Network. Shares in Palo Alto Networks rose more than 5% in premarket trading. Stock in Dish fell more than 6%.
Samsara reported higher sales and a narrower loss in its latest quarter on Thursday, leading to a higher sales and adjusted earnings outlook for the year. Shares edged up 2% in aftermarket trading, extending Friday’s rally.
Forex:
The dollar rose following Friday’s jobs data.
Strong employment growth will “keep pressure on the Fed to keep raising rates,” although a higher unemployment rate and slightly slower wage growth could lead to a slower pace of rate rises and potentially a pause in June, MUFG said.
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The euro edged lower, reversing its Friday gains seen after ECB’s Lagarde said further interest-rate rises are necessary, and this seems justified, Commerzbank said.
EUR/USD rose close to 1.08 on Friday but for it to rise to that level on a sustainable basis, “proof of a continued restrictive ECB stance would have to come from the board and not from the ECB President on her own,” Commerzbank said.
Bonds:
U.S. and eurozone corporate bonds are expected to trade in a tight range this week when there is little key economic or corporate news and ahead of meetings of the Fed and ECB next week, UniCredit Research said.
Energy:
Oil prices rose in Europe after Saudi Arabia, following an OPEC+ meeting, said it would unilaterally slash output by 1 million barrels a day.
Following a contentious meeting, the OPEC+ alliance of OPEC and their Russia-led allies made no changes to their oil output quotas. However, Saudi Arabia said it would voluntarily cut its own output starting in July, and that the cuts could be extended.
Other group members who had cut production earlier this year said they would extend those cuts until the end of 2023.
Outlook
Analysts seem split on whether the OPEC+ meeting showed unity or a lack of cohesion and on how oil prices will respond in the short term.
But the one thing they do agree on is that it will deepen a broadly expected supply deficit later this year.
The IEA was already expecting a 1.9 million bpd deficit by Q3 before the latest move. That deficit could now reach 3 million bpd “Which could add upside [price] pressure in the coming weeks” Rystad Energy said.
Metals:
Base metals and gold prices were falling in early trading, as dollar strength and macroeconomic weaknesses continued to weigh.
Last week’s strong jobs number raised the prospects of another rate hike from the Federal Reserve next week, ANZ Research said.
“With core services inflation ex-shelter still well above target, the FOMC needs to tighten further. It cannot take the risk that the lags in monetary policy may be weaker than expected and elevated inflation persists.”
Today’s Top Headlines
Apple Set to Launch Virtual-Reality Headset Monday, First Major Product in Decade
Apple is set to unveil its first major new product in nearly a decade on Monday at its annual developer conference, a headset meant to enable users to experience virtual reality and digital apps overlaid on the real world.
The announcement is poised to overshadow the new software that Apple will unveil for iPhones and other devices at the annual Worldwide Developers Conference, which begins streaming at 1 p.m. EDT. The rest of the conference, which focuses on software providers making applications in the Apple ecosystem, will run through Friday.
American Airlines’ Radical Plan to Reinvent Business Travel
American Airlines is betting against the traditional business of business travel.
Gone are the days when bankers and consultants spent Monday through Thursday on the road, dutifully booking trips through clunky company portals. More than three years after the pandemic began, business travelers are taking some meetings at home and mixing work and leisure travel in new ways.
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.
EV Makers Confront the ‘Nickel Pickle’
In the electric-vehicle business, the quandary is known as the nickel pickle.
To make batteries for EVs, companies need to mine and refine large amounts of nickel. The process of getting the mineral out of the ground and turning it into battery-ready substances, though, is particularly environmentally unfriendly. Reaching the nickel means cutting down swaths of rainforest. Refining it is a carbon-intensive process that involves extreme heat and high pressure, producing waste slurry that’s hard to dispose of.
Wall Street Backs Off Bets on Fed Rate Cuts
Persistent strength in the economy has wrong-footed bets that the Federal Reserve will make large interest-rate cuts this year, potentially undermining a key element of support for the 2023 stock rally.
Derivatives markets show investors now expect the Fed’s target rate to sit at 5% at year-end, according to Tradeweb, up from just above 4% last month.
Commodities Slide as Investors Bet on Economic Slowdown
Commodity prices are in retreat, signaling a slowdown in the world economy but lending central banks a hand in their fight against inflation.
The S&P GSCI commodities index has fallen about 11% so far this year through Friday, as prices for energy, metals, grains and other raw materials have retreated. Crude oil is close to its lowest levels since just before Russia’s invasion of Ukraine-even after Saudi Arabia’s weekend decision to cut output boosted prices early Monday.
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.
China’s Caixin Services PMI Rose in May
A private gauge of China’s service activities edged up in May and remained in expansionary territory for the fifth consecutive month, suggesting continued recovery in the services sector after Beijing’s lifting of Covid restrictions.
The Caixin China services purchasing managers index rose to 57.1 in May from 56.4 in April, Caixin Media Co. and S&P Global said Monday. The 50 mark separates expansion from contraction.
Big American Companies Wonder: When Will China Bounce Back?
HONG KONG-Big American companies in China were counting on a postpandemic boom to boost global revenue. For many, it isn’t happening.
From chip maker Qualcomm to industrial bellwethers Caterpillar and DuPont, companies are reporting weak results out of China as the country’s reopening from three years of Covid-related isolation has failed to gain steam.
Big Banks Could Face 20% Boost to Capital Requirements
WASHINGTON-U.S. regulators are preparing to force large banks to shore up their financial footing, moves they say will help boost the resilience of the system after a spate of midsize bank failures this year.
The changes, which regulators are on track to propose as early as this month, could raise overall capital requirements by roughly 20% at larger banks on average, people familiar with the plans said. The precise amount will depend on a firm’s business activities, with the biggest increases expected to be reserved for U.S. megabanks with big trading businesses.
AI’s Rapid Growth Threatens to Flood 2024 Campaigns With Fake Videos
China invades Taiwan and migrants surge across the U.S.-Mexico border in a video depicting the aftermath of President Biden’s re-election. In a series of images, former President Donald Trump is pursued on foot and apprehended by uniformed police officers. Another photo shows the Pentagon engulfed in flames following an explosion.
The common denominator among these scenes? They are all fake. Rapidly evolving artificial intelligence is making it easier to generate sophisticated videos and images that can deceive viewers and spread misinformation, posing a major threat to political campaigns as 2024 contests get under way.
Military Jets Scrambled Over Private Plane Near D.C.
The Pentagon activated two F-16 jet fighters Sunday in response to a private Cessna plane that flew over the nation’s capital, the U.S. Military said.
The jets were authorized to travel at supersonic speeds, creating a sonic boom that was heard across the Washington, D.C., area, the North American Aerospace Defense Command, or Norad, said in a statement.
Ukraine’s Next Target: Russian Trenches
While Ukrainian soldiers have spent months training to use new Western tanks and equipment for an expected offensive, Russian forces have been building defenses to stop them.
Satellite images show that the Russians have constructed an elaborate network of obstacles-including antitank trenches, concrete barriers known as dragon’s teeth and layers of advanced minefields-in southern Ukraine, where Kyiv is expected to attack.
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.”
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.
Source: Dow Jones Newswires