US stocks retreat alongside weak showing from European markets, crude oil ends flat

• CAPITAL MARKETS OVERVIEW:

US stocks recovered some of their losses but closed down on Thursday. Previously optimistic labor and services data showed that the economy was strong and continued to recover, triggering market concerns about the Fed's early interest rate cut. The ADP report shows that US companies have added the most jobs in 11 months, and the number of first-time jobless claims has fallen below 400,000. The Purchasing Managers Index (PMI) of the service industry of ISM and Markit shows that the service industry has seen a record expansion. The highly anticipated employment report released on Friday will more clearly reflect the economic recovery. At the same time, the "Washington Post" reported that President Biden proposed a new minimum tax rate of 15% for companies, rather than raising it to 28%, to win Republican support for the infrastructure package. On the company side, after AMC announced plans to raise funds by selling more shares, its stock price fell by 20%. The Dow Jones Index fell 23 points to 34577 points, the S&P 500 Index fell 15 points to 4193 points, and the Nasdaq Index fell 142 points to 13,615 points. The Canadian Standard & Poor's/Toronto Stock Exchange closed down 0.2% on Thursday to close at 19941 points, falling from the record high of the previous trading day, mainly due to material stocks after the 2% drop in gold prices. With oil prices stabilizing, energy stocks have hardly changed. In terms of the pandemic, Ontario's health authorities are considering taking the first step of a reopening plan before the initial deadline of June 14. Labor market data from Canada and the United States will be the focus on Friday. European stock markets closed mixed on Thursday. The Frankfurt DAX30 index closed at a record high of 15,633 points, the Milan FTSE MIB index rose slightly, while the London, Paris, and Madrid stock markets closed down. Hopes for a strong recovery in the European economy continue to support market sentiment, while signs of higher inflation have intensified market concerns about the early tightening of monetary policy. In terms of economic data, the PMI survey showed that after the relaxation of COVID-19 restrictions, business activities in the Eurozone surged in May, input cost inflation hit a 10-year high, and output price increases hit a record high. In addition, traders worldwide are waiting for the employment data released by the United States on Friday, which may affect the time for the Fed to maintain a prudent monetary policy stance. On the corporate side, the spirits group Remy Cointreau announced that its profit growth for the 2020/21 fiscal year was higher than expected, while retailer B&M said that its pre-tax profit doubled last year. The FTSE 100 Index (ftse100) fell, but it closed at 7064 points on Thursday, a decrease of 0.6%, which was lower than yesterday's three-week high. Retail stocks and travel companies performed the worst. Discount store B&M reported that it doubled its pre-tax profit last year due to its maintenance during the lock-up period. Still, the company said that transactions continue to fluctuate at the weekly and product category level, especially since the recent relaxation of lock-up restrictions. At the same time, reports that Portugal will be removed from the British green list also suppressed market sentiment. In addition, Markit's PMI data shows that due to the successful promotion of the vaccine, the UK's private sector activities expanded at a record rate in May. The pandemic restrictions have become more relaxed, and market confidence has increased. However, the survey also shows that cost pressures have intensified, and output costs had risen since November 1999 when comparable data were compiled for the first time. The Nikkei 225 index fell by 232.55 points on Friday to close at 28825.55 points, a decrease of 0.8%, ending the two trading days of gains. The recent optimistic economic data in the United States boosted the Fed's gradual reduction in concerns about continued inflation. Concerning the coronavirus, the Japanese government extended the COVID-19 emergency implemented in Tokyo, Osaka, and seven other prefectures last week. The local 10-year bond yield was 0.086%, while the U.S. 10-year bond yield was 1.627%. Local data show that the actual household expenditure in April increased by 13% compared with the same period of the previous year, the highest increase in history. Earlier this week, the African Union Bank’s Japan Service Purchasing Managers Index (PMI) was raised from a preliminary 45.7 to 46.5 in May, and the final value in April was 49.5. On Thursday, the Shanghai Composite Index fell 12.93 points or 0.36% to close at 3,584.21 points, extending the 0.94% drop of the previous trading day, as there are reports that US President Biden is preparing to revise the US's exposure to Chinese companies connected to the military. The sanctions include the addition of new targets, and market sentiment has deteriorated. Locally, although China's growth rate has slowed down under continued inflationary pressures, China's service industry activity continued to grow in May. Regarding the bond market, the benchmark 10-year U.S. Treasury bond yield fell back to 1.60% on Wednesday after hitting 1.639% on the previous trading day. In business news, German automaker BMW (BMW) stated that its plant in China plans to achieve carbon emission neutrality by the end of this year. By 2030, the company's total carbon emissions in China will drop by 80%. At the same time, the Hang Seng Index fell 364.55 points to 28933.07 points, a decrease of 0.124%

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- JPY: In April 2021, the actual expenditure of Japanese households increased by 13% year-on-year, higher than the previous month's 6.2%, and exceeding market expectations by 9.3%. This is the fastest increase in personal spending on record.

- USD: According to data from the EIA Oil State Report, in the week of May 28, US crude oil inventories decreased by 5.08 million barrels, after a decrease of 1.662 million barrels in the previous week, while market forecasts were for a decrease of 2.443 million barrels. At the same time, gasoline inventories increased by 1.5 million barrels, after a decrease of 1.745 million barrels in the previous week, while the market generally believes that gasoline inventories have decreased by 1.479 million barrels.

- USD: U.S. companies announced layoffs of 24,586 jobs in May 2021, higher than the 21-year low of 22,913 in April. The healthcare/products industry led all industries with 2,775 layoffs, and the education industry followed it with 2,617 layoffs. Rear. This industry includes layoffs in early childhood education. "Many employers, especially those severely hit during the influenza pandemic, such as retailers, hotels, and leisure companies, have difficulty finding staff. As a result, many companies offer signing bonuses or higher wages to attract employees." Challenger, Said Andrew Challenger, senior vice president of Gray&Christmas, Inc. However, the number of layoffs decreased by 93.8% from May 2020, when employers announced 397,016 layoffs. Since the beginning of this year, employers have announced plans to cut 192,185 jobs, 86% less than the 1,514,828 jobs in the same period last year.

- USD: In May 2021, private companies in the United States hired 978,000 employees, which is much higher than the downward revision of the April forecast of 654,000 employees and 650,000 employees. As the labor market continues to recover, this is the highest figure since June 2020. The service industry increased 850,000 jobs, of which the leisure and hotel industry increased 440,000; education and health (139,000); trade, transportation and public utilities (118,000); professional and business (68,000); and financial activities (20,000), and the information department lost 3,000 jobs. On the other hand, the commodity production sector added 128,000 jobs, thanks to growth in the construction industry (65 thousand), manufacturing (52,000), and natural resources, and mining (11,000).

- USD: In the first quarter of 2021, the unit labor cost of the non-agricultural commercial sector in the United States increased by 1.7% month-on-month. In the previous period, the unit labor cost of the non-agricultural commercial sector in the United States increased by 5.6%, while preliminary estimates fell by 0.3% and 0.4%. , Better than market expectations. The unexpected increase reflects a 7.2% increase in hourly wages (1.5% in the fourth quarter of 2020) and a 5.4% increase in productivity (same as previously reported).

- USD: Preliminary estimates show that in the first quarter of 2021, non-agricultural labor productivity in the United States increased by 5.4% month-on-month, recovering from the downwardly revised 3.8% decline in the previous quarter which was higher than market expectations for a 4.3% growth. Production increased by 8.4%, and working hours increased by 3%. Non-agricultural enterprise labor productivity increased by 4.1% year-on-year, increased by 1.1%, and working hours decreased by 2.9%.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: Average Hourly Earnings m/m, Non-Farm Employment Change, Fed Chair Powell Speaks, Unemployment Rate and Factory Orders m/m.

- CAD: Employment Change, Unemployment Rate, Labor Productivity q/q.

- JPY: Household Spending y/y.

- CHF: SNB Chairman Jordan Speaks.

- NZD: RBNZ Gov Orr Speaks.

- GBP: Construction PMI.

- EUR: Retail Sales m/m.

 

• KEY EQUITY MARKET DRIVERS:

- Stocks retreat alongside weak showing from European markets.

- AU200 rose to an all-time high of 7282 points.

- In early Asian markets on Friday, US futures trading fell, extending the decline of the previous trading day, as strong local data exacerbated concerns about rising inflation. The ADP report shows that US companies have added the most jobs in 11 months, and the number of first-time jobless claims has fallen below 400,000. In addition, the Purchasing Managers Index (PMI) of the service industry of ISM and Markit shows that the service industry has seen a record expansion. Thus, the highly anticipated employment report released on Friday will more clearly reflect the economic recovery. Yields on local 10-year bonds also rose because the Federal Reserve announced on Wednesday that it would begin liquidating corporate bonds acquired through emergency loan facilities last year.

- The benchmark 10-year US Treasury bond yield rose to 1.61% on Thursday, after the latest economic data showed that the US economy is recovering strongly and price pressures continue. Employment in the private sector increased more than expected and was the largest increase in 11 months. In addition, the number of people applying for unemployment benefits fell more than expected to 385,000. The Service Industry Purchasing Managers Index (PMI) showed record growth in the service industry. Earlier this week, the Manufacturing Purchasing Managers Index (PMI) showed that despite the tight labor supply and rising price pressures, the growth of US factories exceeded expectations. Last week, PCE inflation soared to its highest level since the 1990s. The employment report released on Friday will provide further updates on the US labor market.

- European stock market futures got off to a good start on Thursday, with retailer B&M European Value, explosives manufacturer Chemring, water company Pennon and brandy manufacturer Remy Cointreau reporting quarterly earnings. The expectation that the Eurozone economy will recover faster in the coming months continues to support market sentiment, while concerns about inflation have dampened gains. In addition, European Commission President Ursula von Delane said on the 11th that the EU has completed 250 million vaccinations and is expected to achieve the goal of 70% of the adult population by the end of July. In other respects, global traders are waiting for the US employment data released on Thursday and Friday, which may affect the time for the Federal Reserve to maintain a prudent monetary policy stance.

 

• STOCK MARKET SECTORS:

- High: Financials, Health Care, Energy.

- Low: Technology, Consumer Discretionary, Communication Services, Materials.

 

• TOP CURRENCY MARKET DRIVERS:

- JPY: The yen rose 0.101 points or 0.09% against the dollar on Friday to close at 110.166 points, an 8-week low, as strong US data pushed the dollar to a 3-week high. The local 10-year bond yield was 0.086%, while the U.S. 10-year bond yield rose to 1.627%. In the United States, the ADP report shows that US companies have created the most jobs in 11 months, much higher than expected, while the number of first-time jobless claims has fallen more than expected, and the service industry PMI shows record growth in the service industry. Concerning the coronavirus, the Japanese government extended the COVID-19 emergency implemented in Tokyo, Osaka, and seven other prefectures last week. Furthermore, local data show that the actual household expenditure in April increased by 13% compared with the same period of the previous year, the highest increase in history. Earlier this week, the African Union Bank’s Japan Service Purchasing Managers Index (PMI) was raised from a preliminary 45.7 to 46.5 in May, and the final value in April was 49.5.

- AUD: The Australian dollar was flat at a seven-week low of 0.76614 in early trading on Friday and stabilized after a 1.21% drop from the previous trading day, as strong US data pushed the dollar to a three-week high. The local 10-year bond yield was 1.645%, while the U.S. 10-year bond yield rose to 1.627%. In the United States, the ADP report shows that US companies have created the most jobs in 11 months, much higher than expected, while the number of first-time jobless claims has fallen more than expected, and the service industry PMI shows record growth in the service industry. In addition, local data show that retail sales in April increased by 1.1% month-on-month, the second consecutive month of growth; Australia’s trade surplus was the largest since January. Exports rose by 3%, an 11-month high, and imports falling by 3%.

- USD: The U.S. dollar index remained at 90.557 in early trading on Friday. After optimistic labor market and service industry data increased the bet that the Federal Reserve will begin to reduce volume sooner or later, it rose to a 3-week high during the session. The ADP report shows that in 11 months, American companies have created the most jobs, much higher than expected. In addition, the number of people applying for unemployment benefits for the first time has fallen more than expected, and the service industry PMI shows record growth in the service industry. Friday's employment report will provide a clearer picture of the labor market recovery. The local 10-year bond yield also rose to 1.63%. After the Federal Reserve (fed) announced on Wednesday that it would start to roll out an emergency loan mechanism to liquidate its corporate bonds held last year to calm the credit market when the epidemic was at its worst. The company plans to sell its bonds and ETFs gradually to minimize the possibility of "any adverse impact on market operations."

- NZD: In early trading in the Asia-Pacific region on Friday, the New Zealand dollar held steady at 0.71481, after falling 1.23% in the previous trading day to a 4-week low, as strong US data pushed the dollar a 3-week high. The local 10-year bond yield was reported at 1.801%, while the US 10-year bond yield rose to 1.627%. In the United States, the ADP report shows that US companies have created the most jobs in 11 months, much higher than expected, while the number of first-time jobless claims has fallen more than expected, and the service industry PMI shows record growth in the service industry. At the same time, local data earlier this week showed that for the three months ending in March 2021, export prices fell 0.8% quarter-on-quarter, while import prices fell 0.8% over the same period.

- EUR: The euro-dollar exchange rate was slightly lower than 1.22 US dollars, not far from the more than four-month high of 1.2265 US dollars hit last week, as investors digested the new PMI data and worried that the United States might tighten monetary policy ahead of time due to signs of higher inflation. According to the PMI survey, after the relaxation of COVID-19 restrictions, business activities in the eurozone surged in May, input cost inflation hit a 10-year high, and output price increases hit a record high. At the same time, traders are waiting for the US employment data to be released on Friday, which may affect the time for the Fed to maintain a prudent monetary policy stance. In addition, European Commission President Ursula von Delane said that the European Union is expected to achieve its goal of vaccinating 70% of the adult population by the end of July.

- EUR: On Thursday, as traders took a wait-and-see attitude toward a batch of Purchasing Managers Index (PMI) and other economic health indicators, the CAC40 index hovered near the flat line and hovered near the 21-year high in the flat intraday of the European market. In France, the expansion of the service industry is the largest since July 2020, thanks to the increase in domestic demand as France gradually lifts COVID-19 restrictions. On the corporate side, building materials manufacturer Saint Gobain outperformed the index as investors welcomed the company’s press release, stating that operating income in the first half of 2021 is expected to reach record levels.

- EUR: The IHS-Markit-France comprehensive PMI rose from 51.6 last month to 57 in May 2021, consistent with preliminary estimates. The latest data point out that with the relaxation of blockade restrictions and the reopening of the economy, private sector activity has seen its strongest expansion since July 2020. Despite the relatively rapid expansion of the manufacturing industry (PMI 59.2 to 58.9), the service industry contributed to the overall acceleration of economic growth (PMI in April was 56.6 to 50.3). New jobs are expanding at the fastest rate in more than three years, mainly due to the strong improvement in domestic demand, which is reflected in the increase in production. At the same time, the employment growth rate was the lowest in four months, and the backlog grew at the strongest rate in more than three years. In terms of prices, input cost inflation remains sharp, while output prices have experienced the largest increase in the past 10 years.

- EUR: In May 2021, the Eurozone IHS Markit Comprehensive Purchasing Managers Index (PMI) was revised up to 57.1 from an initial 56.9, showing the strongest growth in private sector activity since February 2018. The growth of the service industry accelerated significantly (55.2 to 50.5 in April), and factory activity grew at a record rate (63.1 to 62.9). New jobs in the private sector have reached their highest level since June 2006. Sales growth is also broad-based, with growth in both domestic and international markets. This is the increase in new jobs. Nevertheless, it is difficult for the company to stay above the overall workload, as evidenced by the increase in the backlog of unfinished business in the third month and the increase in employees for the fourth consecutive month. In general, the price increase of input products has reached the highest level in more than a decade, and the price increase of output products has reached the highest level ever.

- CAD: The IHS Markit/CIPS UK Comprehensive Purchasing Managers Index (PMI) was revised from a preliminary estimate of 62.0 to 62.9 in May 2021 to indicate the maximum expansion rate since the series began in January 1998. Supported by corporate and consumer spending, both the manufacturing and service industries have seen rapid growth in output. Although the rate of job creation is the highest since June 2014, the increase in input costs is 2008, The highest level since August 2008, and the charge inflation rate is the highest level on record.

- SEK: In May 2021, the Purchasing Managers Index (PMI) of the Swedish service industry rose to 71.7 from 65.6 last month, marking the fastest expansion of the industry in more than 15 years. The business volume contributes the most to growth. The new orders and delivery time sub-indices both hit record highs, the employment index rose to the highest level since the end of 2018, price pressures further increased, and the supplier purchase price index rose to 76.7, a record high. At the same time, driven by the service industry, the business volume plan index of service companies rose from 67.2 to 70.2. "This is the highest index level so far, indicating that the recovery of the business sector is much faster than the recovery of the economy after the global financial crisis more than 10 years ago," said Jorgen Kennemar, who is in charge of PMI analysis at the Riksbank.

 

• CHART OF THE DAY:

The pound was quoted at $1.418 against the U.S. dollar. Earlier this week, it hit a three-year high of $1.425. Due to the surge in cases of the COVID variant now called Delta, the market is worried that it was originally scheduled to reopen on June 21. As a result, the British economy may be delayed. At the same time, data from the Purchasing Managers Index (PMI) showed that private sector activity in the UK expanded at a record rate in May. The successful launch of the vaccine has relaxed restrictions and confidence in the pandemic. However, the survey also showed that cost pressures have intensified, and output costs have risen to the highest level since comparable data was first compiled in November 1999. In other respects, investors will look for signs of economic rebound and rising inflation from the monthly US employment data released on Friday.

• GBPUSD - D1, Resistance (target zone) around ~ 1.42, Support around (consolidation) ~ 1.40.

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