A Day Ahead View in US and Global Markets by Mike Dolan
With a still-powerful instinct to “buy the dip” in stocks, US markets are having a rare bout of jitters over the slowing economy – with Treasury yields, the dollar and oil prices tumbling in recent months. last 24 hours.
Wall Street’s tech-led “bounceback capacity” was again in evidence on Monday, with the S&P500 recovering steep intraday losses to close higher for the day.
But the rates, currency and raw materials complex is sending strong signals of a strong industrial slowdown in the US.
While an economic stumble at this stage could be a double-edged sword for near-record stocks – compounding the earnings implications with the increased likelihood of lower rates from the Federal Reserve – the push-pull could continue until this week’s key jobs report, at least .
S&P500 futures are back in the red ahead of Tuesday’s open, with equity losses across most of Asia and Europe today as well.
On Monday, the latest ISM US manufacturing survey showed a deeper contraction in May activity than anticipated, amplifying similarly harsh readings from the equivalent Chicago manufacturing survey late last week, and to top it off signs of an erosion of household spending in April.
The combination was enough to drag the Atlanta Fed’s real-time “GDPNow” estimate down to 1.8% — from 3.5% a week ago and more than 4% in mid-May, and the reading lowest of the entire year.
The week’s major labor market surveys will begin this Tuesday, with job opening data for April.
Fed rate cut expectations for the full year are now back above 40 basis points (bps) – almost 10 bps higher than a week ago.
Driven and fueled by the post-OPEC slump in crude oil prices – itself a victim of industrial anxiety – 10-year Treasury bond yields fell to their lowest level in nearly three weeks. Oil prices rose further on Tuesday to their lowest level since February 6 – bringing annual gains back below 2% for the first time in three months.
And the 25 basis point pullback in 10-year yields over the past week was enough to send the newly re-emerged “term premium” over long-term debt holdings back below zero.
ELECTION RESULTS
The dollar was also a victim, with its DXY index falling to its lowest level in almost two months before stabilizing. The euro briefly reached its highest level since mid-March ahead of the European Central Bank’s widely expected interest rate cut this week, while dollar/yen retreated to 155 for the first time since May 16.
However, controlling the dollar’s decline more broadly has been a continued fall in the Mexican peso, a retreat in the Indian rupee and renewed losses in the South African rand following this week’s election results in all three countries.
The rupee fell sharply to a three-week low as provisional results from India’s protracted elections showed that the alliance led by Narendra Modi’s BJP fell far short of what weekend supermajority exit polls suggested.
But the real blow was to Indian stocks, which plunged more than 8% in the biggest loss in more than four years – after hopes on Monday of major reforms and spending in the event of a two-thirds parliamentary majority were dashed. erased and brought down the market. back from the records.
The peso, however, has accumulated losses of up to 5% since Friday, following Claudia Sheinbaum’s victory in the presidential elections and the almost supermajority of the left-wing Morena party. The concern involves possible constitutional changes that could occur, as well as an apparent free rein on public spending.
Top daily items that could guide US markets later this Tuesday:
* US job openings in April, factory product orders in April
* US corporate profits: Hewlett Packard Enterprise, Bath & Body Works
(Reporting by Mike Dolan, Editing by Alex Richardson mike.dolan@thomsonreuters.com)
