GLOBAL CAPITAL MARKETS OVERVIEW, ANALYSIS & FORECASTS:
Author: Dr. Alexander APOSTOLOV (researcher at Economic Research Institute at BAS)
The Dow closed up 700 points, or 2.1%, on Friday, the S&P 500 rose 1.4% to its highest level since August 2022, and the Nasdaq topped its April 2022 high, up 1%. Investors welcomed the mixed jobs report, which showed higher-than-expected white payrolls, an unexpected rise in the unemployment rate, and slower annual wage growth. The data could influence the Fed's decision to hold the Fed funds rate steady this month as they seek more clarity on the state of the economy. However, the odds of a 25 basis point hike this month have increased slightly. Meanwhile, the passage of the Fiscal Responsibility Act in the Senate also boosted investor sentiment. On the corporate front, shares of Lululemon rose 11.1% after the company raised its full-year outlook. So far this week, the Dow is up 2.4%, while the S&P 500 and Nasdaq are up 2.6% and 3.4%, respectively.
The S&P/TSX Composite rose nearly 1.8% to close at 20,000 on Friday, extending gains from the previous session and tracking a strong session for U.S. stocks, as investors reacted to mixed data on the U.S. labor market. welcome. Non-farm payrolls topped market forecasts and lifted North American bond yields despite a much higher-than-expected unemployment rate and slower wage growth. Energy stocks led the gains, rising 2.8 percent, while banks and industrials rose 2.1 percent each. Policy-sensitive technology stocks and marijuana producers also posted gains. Gold miners, on the other hand, traded under pressure amid falling gold prices. In corporate news, Suncor Energy shares rose nearly 3% after the company announced plans to cut 1,500 jobs by the end of the year. For the week, the S&P/TSX edged up 0.3%.
The ruble-based MOEX Russia index pared early losses to close at 2,719 on Friday, up 1.4% for the week, with ex-dividend trading in Lukoil shares offsetting a strong performance in Russian equities. Shares of the oil major fell 5.7%, shrugging off a record 2022 dividend, and closed yesterday with a yield of 7.7%. Still, Bashneft, Tatneft, and Surgut continued to rise as Urals oil's discount to Brent narrowed to post-invasion lows of $20 a barrel, according to local sources. Meanwhile, a rebound in base metal prices supported gains in Mechel and NorNickel. Finally, VTB shares closed up 5.4%, recovering from early losses, even as the bank priced the secondary public offering below market price.
European shares held on to early gains on Friday afternoon, with Germany's DAX 40 and the pan-European STOXX 600 both up around 0.9% as investors digested the latest U.S. jobs report. Data showed non-farm payrolls rose more than expected in May, even as the unemployment rate rose to 3.7%. The US Senate's vote yesterday to temporarily suspend the government's $31.4 billion debt ceiling further boosted market sentiment. On the business front, Swedish investment firm EQT agreed to acquire British veterinary drugmaker Dechra Pharmaceuticals for £4.88 billion. The CAC 40 extended early gains and was up about 1.4% at 7,240 on Friday afternoon, tracking gains in its European peers as investors digested a mixed U.S. jobs report. While non-farm payrolls rose much more than expected, wage growth slowed, and the unemployment rate rose. Meanwhile, traders welcomed the U.S. Senate's approval of the text to suspend the debt ceiling. The luxury sector was the best performer, with strong gains from LVMH (2.8%), Hermès (1.8%), and Kering (1.7%). Alstom also rose more than 3 percent after it announced it had signed a contract to deliver 110 electric streetcars to the Southeastern Pennsylvania Transit Authority, worth more than 667 million euros. Also, shares of Renault surged nearly 5%. Conversely, Legrand (-1.4%) and Orange (-1.1%) were the worst performers. For the week, the CAC 40 is set to drop nearly 1%. On Friday afternoon, the FTSE MIB index extended early gains, rising more than 1% from 26,950, as investors digested a mixed US jobs report. The U.S. economy added more jobs than expected in May, wage growth slowed, and the unemployment rate exceeded expectations, although it remained historically low. The Senate's passage of the US debt ceiling bill also improved market sentiment. OOn the corporate front, nearly all sectors were up, with oil companies like Saipem (+5.4%), Tenaris (+3.3%), and Moncler (+4%) leading the way.The FTSE MIB is set to rise about 0.9 percent for the week. The IBEX 35 rose about 1.6 percent to close at 9,317 on Friday, tracking its European peers higher as investors digested a mixed U.S. wage report and the U.S. Senate's approval of a debt deal. Although nonfarm payrolls increased much more than expected, wage growth slowed, and the unemployment rate increased. Meanwhile, data for Spain showed that the number of people registered as unemployed fell to 2.74 million in May 2023, the lowest May unemployment rate since 2008. Within the Spanish selection, the biggest movers were Grifols (+6.5%), ArcelorMittal (+4.7%), and Merlin (+4.3%). The IBEX 35 advanced about 1.4% this week.
The FTSE 100 rose 0.4% to close at 7,525 on Friday, extending yesterday's rally to track positive momentum in global equities amid the passage of a U.S. debt-limit deal and further dovish signals from Fed officials. British mining heavyweights led gains, with Rio Tinto and Anglo American both up more than 2.3 percent, after base metals extended their recovery from monthly lows this week. Dechra Pharmaceuticals increased 8.2 percent among other industries and small caps after deciding to enter into a £4.5 billion takeover agreement with Swedish equity firm EQT. Still, the FTSE 100 is still set to end the week down 0.5 percent.
Hong Kong stocks soared 740.94 points, or 4.07%, to close at 18957.85 on Friday, adding 2.2% for the week, boosted by a surge in U.S. stock futures after the U.S. Senate passed legislation suspending the nation's debt ceiling. The Hang Seng Index also recovered from two days of losses that dragged the index to its lowest level in six months, as recent dovish comments from Federal Reserve officials eased fears of further tightening in the United States. Data from a private survey on Thursday showed factory activity accelerated in May, with strong output and demand. All sectors contributed to the upturn, with technology, consumer goods, and real estate each up more than 5%, while financials also rallied sharply. The best performers on the day were Longfu Group (15.9%), Zhongsen Group (11.2%), Li Ning (10.7%), China Resources (10.6%), Meituan (6.9%), Fosun International (6.3%), and Tencent Holdings . (5.5%).
On Friday, the Shanghai Composite rose 0.5 percent to close at around 3,220, while the Shenzhen Composite rose 1.2 percent to close at 10,960, rising for a second straight session and tracking global peers higher after the U.S. House of Representatives passed a bill to raise the debt ceiling. Domestically, hopes for further policy support also lifted mainland stocks, as mixed economic data from China pointed to an uneven post-pandemic recovery. Artificial intelligence-related and other technology stocks led the gains, iFlytek (2%), Kunlun Technology (4.6%), 360 Security Technology (2%), Zhejiang Century (2.2%), and Hengxin Shambhala (11.9%) rose strongly . Other heavyweights also gained, including Contemporary Ampere (2.1%), Blue Light Intellectual Property (2%), and China Shipbuilding Technology (3.2%).
The Nikkei 225 rose 0.6% to close above 31,300, and the Topix added 0.9% to 2,169, rising for a second straight session, tracking Wall Street's overnight gains after the House of Representatives passed the U.S. debt ceiling bill , alleviating concerns about a potential default and removing a source of uncertainty in the market. The benchmark index also climbed back to a 33-year high after Japanese stocks outperformed global peers in May on strong domestic earnings and a weaker yen. Index heavyweights gained notably, such as Toyota Motor (2%), Lotte Group (1.6%), Nintendo (1.6%), Daikin Industries (2.6%), Sony Group (0.9%), and Panasonic Holdings (3.1%). Elsewhere, investment giant SoftBank Group Corp. rose 5 percent on its exposure to semiconductor and artificial intelligence-related companies.
Australia's S&P/ASX 200 rose 0.6% to above 7,150 on Friday, its second straight session of gains, led by gains in technology and mining stocks. Australian shares also followed Wall Street's overnight gains as the U.S. House of Representatives passed a debt ceiling bill, easing fears of a potential default and removing a source of uncertainty in the market. Tech and mining led the gains, led by Appen (6.7%), Wesage Global (1%), Silex Systems (6.2%), BHP Billiton Group (1.9%), Fortescue Metals (0.9%), and Rio Tinto (1.6%). Other index heavyweights also gained, including Commonwealth Bank (0.5%), CSL Limited (0.4%), IDP Education (2.6%), Newcrest Mining (3.4%), and Woodside Energy (0.6%).
New Zealand shares fell 11.55 points, or 0.10%, to 11905.58 in early trade on Friday, after rising in the previous session, weighed down by weak economic data. New Zealand's export prices fell 6.9% quarter-on-quarter in the first quarter, below market forecasts of 2.7% and the fastest decline since the third quarter of 2020. Meanwhile, import prices fell 5.4%, faster than the consensus 1.1% drop and the biggest drop since the fourth quarter of 2009. Investors were also cautious ahead of a June 5 deadline for Washington lawmakers to pass the legislative measure. However, losses were limited on Wall Street overnight as the U.S. debt ceiling vote passed the first congressional hurdle. Energy and healthcare .SPLRCT led the declines, both down more than 0.6 percent. Among individual stocks, Fisher & Paykel fell 1.44 percent, A2 Milk fell 0.52 percent, and Ebos Group fell 0.29 percent. For the week, the index was set to rise 0.6% on hopes of a deal on the U.S. debt ceiling.
The Baltic Exchange's main shipping index, which measures the cost of shipping goods around the world, fell for a 16th straight session on Friday, falling about 1.9 percent to above a three-month low of 919 points. The capesize index, which tracks vessels typically carrying 150,000 metric tons of cargo such as iron ore and coal, fell 2.5% to a more than three-month low of 1,116; and the panamax index, which tracks ships that typically carry coal or grain cargoes of about 60,000 to 70,000 metric tons, was unchanged at its lowest level since Feb. 22. Among smaller ships, the supramax index lost 28 points, or about 3.3%, to its lowest level since late February at 819 points.The benchmark has tumbled about 21.6% this week, its biggest drop since early January.
Brazil's Ibovespa stock index rose nearly 2 percent above the 112,670 level on Friday, extending Thursday's sharp gains, in line with its global peers. Investors reacted positively to the mixed US jobs report and the Senate's approval of the US debt ceiling bill. The latest U.S. nonfarm payrolls report for May showed employers added more jobs than expected despite a surprise increase in unemployment. On the domestic data front, industrial production in Brazil fell more than expected in April. On the corporate front, several companies posted solid gains, notably CVC (+7.4%), Cosan (+6.2%), and CSNMineracao (+5.2%).Heavyweight miners Vale (+3.9%) and Petrobras (+1.1%) also traded in the green; while Via (-3.2%) and Totvs (-2.6%) trailed the most. For the week, the Ibovespa should have risen by more than 1.5%.
REVIEWING THE LAST ECONOMIC DATA:
Reviewing the latest economic news, the most critical data is:
- US: It will be a relatively quiet week in the US following the debt deal turmoil, with only the ISM services PMI, factory orders, and trade data being significant. Elsewhere, investors will be closely watching monetary policy meetings in Australia, Canada, and India. In addition, China, Brazil, Mexico, Turkey, Russia, Indonesia, the Philippines, and Switzerland will release inflation rates for May. Other important data include first-quarter GDP growth in South Africa and Australia, as well as service PMI data from Brazil, China, Spain, and Italy. Finally, foreign trade data is expected from Australia, Canada, China, Germany, and France, labor force data from Canada, and retail sales data from the Eurozone.
- US: In May 2023, the U.S. unemployment rate rose to 3.7%, the highest level since October 2022, higher than market expectations of 3.5%. Despite this rise, the unemployment rate remains historically low, suggesting that the labor market remains tight. The number of unemployed people increased by 440,000 to 6.1 million, and the employment level fell by 310,000 to 160.72 million. The so-called U-6 unemployment rate rose to 6.7% in May, also above the forecast of 6.6%. The U-6 unemployment rate also includes those who wanted to work but gave up looking for one, and those who worked part-time because they couldn't find full-time work. The labor force participation rate was unchanged at 62.6%, remaining at its highest level since March 2020.
- US: In May 2023, the U.S. economy unexpectedly added 339,000 jobs, the most in four months, well above the market forecast of 19,000. Data for March and April were revised upward, bringing employment 93K higher than previously reported. Employment rose in May in professional and business services (64K), namely professional, scientific, and technical services; government (56K); health care (52K); leisure and hospitality (48K); construction (25K); transportation and warehousing (24K); and social assistance (22K). Employment in other major industries was little changed in the month, including mining, quarrying, and oil and gas extraction; manufacturing; wholesale trade; retail trade; information and financial activities; and other services. The data continued to point to a tight labor market, with payrolls gaining an average of 314,000 a month so far this year. Leisure and hospitality is still on the rise, adding an average of 77K jobs per month over the past 12 months.
- FR: From January to April 2023, the French government's budget deficit widened to 83.7 billion euros from 67.3 billion euros in the same period of the previous year, the highest since December 2022. Government spending rose 8.5 percent to 16.8 billion euros, while revenue fell 4.3 percent to 99.5 billion euros. Meanwhile, the deficit in the Treasury's special account, which tracks the inflow and outflow balances of targeted revenue and spending, such as local government revenue, rose to 14.9 billion euros from 16.3 billion euros.
- FR: Following a 1.1% drop in March, French industrial production rose 0.8% month-on-month in April 2023, compared to market expectations for a 0.3% increase. Output rebounded sharply across all sectors: manufacturing (0.7% vs. -1.1%), mainly coking and refining (23.6% vs. -45.6%) and electrical equipment (1.5% vs. -6.2%); mining and mining stone; energy, water supply, and waste management (1.8% vs. -1.2%); and construction (0.8% vs. -0.9%). Industrial production edged up 1.1% year-on-year after falling 0.1% the previous month.
- SW: Sweden's current account surplus rose to SEK 88.6 billion in Q1 2023 from SEK 75.7 billion a year earlier, easily beating market forecasts of SEK 60.5 billion as the goods surplus increased from SEK 60.7 billion a year earlier. That surged to 74.7 billion Swedish kronor, while primary income, which mainly consists of employee compensation and investment income, posted a surplus of 55.1 billion Swedish kronor in the first quarter, just shy of 55.6 billion Swedish shillings. In addition, secondary revenues, which include international cooperation, contributions to the EU, and donations, posted a deficit of SEK 28.5 billion, down from SEK 32 billion a year earlier. Meanwhile, the service deficit widened from SEK 8.7 billion to SEK 12.6 billion.
- AU: The value of new home loans for Australian owner-occupied dwellings unexpectedly fell 3.8% month-on-month to A$15.4 billion in April 2023, missing consensus forecasts for a 3% rise and falling after a rise in the previous month. Home construction fell 7.7 percent, while purchases of existing homes fell 3.4 percent and purchases of new homes fell 2.9 percent. Among the states and territories, new loan commitments fell in the Northern Territory (-20.6%), followed by the Australian Capital Territory (-5.3%), New South Wales (-5.1%), Victoria (-1.9%), Queensland ( -1.8%), Western Australia (-1%), and Tasmania (-0.1%), while they were almost flat in South Australia. On an annualized basis, the value of new home loans fell by 25.8%.
- SK: In May 2023, South Korea's consumer price index rose 3.3% year-on-year, compared with a rise of 3.7% in April, falling for the fourth consecutive month. That was the lowest figure since October 2021, supporting market views that the central bank's policy tightening cycle is over after it paused interest rates at its April meeting. The bank raised its policy rate by 3 percentage points in August 2021 to fight inflation, bringing borrowing costs to a 14-year high of 3.5%, before pausing hikes in February. Prices rose 0.3% on a monthly basis after rising 0.2% in the previous month.
Today, investors should watch out for the following important data:
- AUD: MI Inflation Gauge m/m, ANZ Job Advertisements m/m, and Company Operating Profits q/q.
- CNY: Caixin Services PMI.
- CHF: CPI m/m.
- USD: Final Services PMI, ISM Services PMI, and Factory Orders m/m.
- NZD: Bank Holiday.
- EUR: German Trade Balance, Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI, Final Services PMI, Sentix Investor Confidence, PPI m/m, ECB President Lagarde Speaks, and German Buba President Nagel Speaks.
- GBP: Final Services PMI.
KEY EQUITY & BOND MARKET DRIVERS:
Кey factors in the stock and bond market are currently:
- US: The 10-year U.S. Treasury yield rose to 3.63% on Friday after domestic labor data added confusion to the expected path of U.S. monetary policy. Recent comments from Fed officials have suggested the central bank may skip a rate hike at its next meeting, but the latest jobs report raised the odds of a 25 basis point hike this month. The U.S. economy added 339,000 jobs in May, well above the market estimate of 190,000, following an upwardly revised 294,000 in April. On the other hand, the unemployment rate rose 0.3 percentage point to 3.7%, and hourly wage growth slowed. Meanwhile, the U.S. Congress approved a deal to suspend the government's debt ceiling until 2025, allaying fears of a default.
- US: U.S. futures continued to rise on Friday, with the Dow up nearly 200 points and the S&P 500 and Nasdaq up more than 0.5%, as investors welcomed a mixed U.S. jobs report and the passage of the Senate's Fiscal Responsibility Act. The U.S. economy unexpectedly added 339,000 jobs, beating forecasts for 190,000, but the unemployment rate rose to a seven-month high of 3.7%, above expectations for 3.5%, while wage growth slowed in line with forecasts. On the corporate front, shares of Lululemon rose nearly 15% in premarket trading after the company raised its full-year outlook. Shares of Nike also rose more than 2%, rebounding from a 1.6% drop the previous day. Macy's announced that Nike products will return to its stores and website in October.
LEADING MARKET SECTORS:
- Strong sectors: Materials, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care.
- Weak sectors: --.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
Кey factors in the currency and commodities market are currently:
- OIL: Brent crude futures jumped more than 2% to near $76 a barrel on Friday as investors welcomed the US Senate's passage of a debt deal and a mixed US wage report while awaiting the weekend OPEC+ meeting. Although most market participants do not expect the cartel to announce further oil supply cuts, it is worth noting that in April, OPEC+ surprised the market with a cut of 1.16 million barrels per day, and Saudi Arabia's energy minister recently warned speculators to "watch out". However, Russian Deputy Prime Minister Alexander Novak expressed his belief that OPEC+ would not implement new measures as the group had just implemented production cuts last month.Brent crude fell nearly 10% in May on concerns of a slowdown in demand, mainly from top crude importer China.
- WTI: WTI crude futures jumped more than 2% to above $71.5 a barrel on Friday as investors welcomed the US Senate's passage of a debt deal and a mixed US wage report while awaiting the weekend OPEC+ meeting. Although most market participants do not expect the cartel to announce further oil supply cuts, it is worth noting that in AApril,OPEC+ surprised the market with a cut of 1.16 million barrels per day, and Saudi Arabia's energy minister recently warned speculators to "watch out". However, Russian Deputy Prime Minister Alexander Novak expressed his belief that OPEC+ would not implement new measures as the group had just implemented production cuts last month.Oil prices plunged nearly 11% in May on concerns of a slowdown in demand, mainly from top crude importer China.
- GLD: Gold prices fell slightly to $1,970 an ounce on Friday after a payrolls report showed surprisingly strong U.S. job growth. Traders now peg a nearly 66 percent chance the Fed will leave interest rates steady this month, down from 75 percent before the release. About 34% of investors now see the Fed raising rates by another 25 basis points. Meanwhile, the US Senate approved a bipartisan deal that would raise the federal debt ceiling, allaying fears of a historic US default. For the week, gold prices are on track to rise nearly 1%, the first weekly gain in four.
- STL: Steel rebar futures rose to CNY 3,600 a tonne after falling to a three-year low of CNY 2,460 on May 25 on hopes that demand in top consumer China may pick up at the end of the second quarter. The broader Caixin Manufacturing PMI unexpectedly pointed to a slight expansion in May, raising hopes that the recent industrial slump may be coming to an end. The PBoC also injected CNY 2 billion in cash into the banking sector to boost capital for China's debt-ridden property sector, a move that signals continued support from the state. However, doubts remain about the impact that expansionary policies may have on Chinese construction and the current low levels of steel demand.The latest figures show property investment fell by 16.2% in April, while house prices fell for the 12th consecutive period.
CHART OF THE DAY:
Friday's conflicting employment data dampened investor expectations for a pause in the Fed's tightening cycle. The U.S. dollar index rose to 103.7. The U.S. economy unexpectedly added 339,000 jobs, surpassing the anticipated increase of 195,000. However, the unemployment rate increased to 3.7%, exceeding expectations of 3.5%, and wage growth slowed as anticipated. Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker previously stated that the central bank may not raise interest rates at its next meeting, but emphasized that this should not be interpreted as the end of the tightening cycle. In addition, the House of Representatives passed the Fiscal Responsibility Act of 2023, which is anticipated to be passed by the Senate prior to the June 5 deadline for default. The DXY index dipped 0.7% for the week.
Long-term Channels Trading Strategy for: (U.S. dollar index DXY).Time frame (D1). The primary resistance is around (104.75). The primary support is around (102.89). Therefore, the next most probable price movement is a (up/consolidation) trend. (*see all other details on the chart).