Summary: US equities firmed up on Thursday with tech stocks outperforming as Treasury yields slid lower on a spike in jobless claims spooking concerns of a cooling labor market in the US. After some hawkish signal from global central banks this week, markets were relieved as Fed pause next week looked more likely and eyes turn to China inflation data due today which could prompt more stimulus calls. USD slumped while oil prices hit MTD lows on possible US-Iran nuclear deal reports which were later denied by the White House.
The S&P 500 entered a technical bull market with 0.6% gains overnight taking the overall gains since October lows to over 20%. NASDAQ 100 outperformed as tech stocks surged on expectations that the labor market is starting to cool after initial jobless claims surged to their highest levels since October 2021. The small-cap Russell 2000 index, meanwhile, was down 0.4% after some gains over the last few days as recession concerns accelerated.
DocuSign was up 6% at one point before closing lower as it reported Q1 EPS of $0.72 versus $0.55 expected, while revenues came in at $661.4 million versus $641.69 million expected. The company also forecasted Q2 2024 revenue in the range of $675-679 million versus $670.4 expected. Tesla was up over 4% as GM joined its charging station network.
Treasuries bull-flattened after the spike in jobless claims unwound some of the recent pricing for Fed rate hikes after surprise rate hikes by RBA and Bank of Canada this week. 2-year yields slid by 4bps to 4.51% while 10-year yields were down close to 8bps to 3.72%.
The Hang Seng Index recovered from early losses and rose by 0.2%, driven by a rebound in Chinese developers and gains in financials. Country Garden (02007:xhkg) surged 10.2%, while China Everbright Bank (06818:xhkg), Agricultural Bank (01288:xhkg), and Hang Seng Bank (00011:xhkg) each saw gains of over 2%. Trip.com (09961:xhkg) also performed well, rising 5.1% due to strong revenues and earnings that surpassed market expectations. On the other hand, the Hang Seng TECH Index declined by 0.7% as EV makers retreated.
During a financial forum in Shanghai, Li Yunze, Chief of the National Financial Regulatory Administration, and Yi Huiman, Chairman of the China Securities Regulatory Commission, sent positive messages affirming their commitment to the growth and advancement of the Chinese financial sector. These statements boosted market sentiment. Additionally, leading state-owned banks in China reduced their deposit rates by 5bps to 15bps points across different maturities. Investors welcomed this move as it improves banks' net interest margins and sets the stage for potential lending rate cuts.
Similarly, in mainland China, real estate, construction, household appliances, and financial sectors led the advance of A-shares. After briefly dipping in the morning to reach a new recent low, the CSI300 bounced and finished the day 0.8% higher.
The US dollar weakened on Thursday with NOK and CHF outperforming, the latter primarily on hawkish remarks from SNB Chair Jordan who noted inflation is more persistent than the bank had thought, and are seeing second- and third-round effects. A rise in jobless claims, although distorted by the Memorial Day holiday in the week, also spooked concerns of a looseing labor market which may prompt the Fed to pause next week despite hawkish signals from some of the other central banks this week. Lower Treasury yields underpinned a rebound in the yen, with USDJPY slipping to sub-139 levels. EURUSD rose above 1.0780 despite Q1 GDP data confirming a technical recession for the Eurozone. AUDUSD rose above 0.6700 while GBPUSD was above 1.2550.
Crude oil fell amid fears that a possible US-Iran nuclear deal would pave the way for more supply hitting the market as sanctions get removed. The United States and Iran are close to reaching a temporary deal allowing Iran to export 1 million barrels of oil each day, according to a report by London-based news site the Middle East Eye on Thursday. WTI prices slumped to sub-$70 on the news before recovering to close around $71 after the US said that the news was "false and misleading." Brent, likewise, slid to $73.50 before closing at $75.50. Near-term demand concerns remain the biggest headwind for crude oil prices for now.
Gold prices rose 1.3% on Thursday after some weakness earlier in the week as central banks like RBA and Bank of Canada surprised with rate hikes. But overnight, the US jobless claims spiked higher which put concerns around whether the Fed could follow to rest. Markets continue to price in a pause from the Fed in June but a rate hike in July and one cut later in the year. Moreover, China expanded its gold reserves for the seventh consecutive month with an increase of 16 tons in May, reinforcing the sustained global demand for the precious metal among central banks and further underpinning strength in the yellow metal. Support at $1935 remains key to hold, while an upside break above $2000 is needed to confirm upside trend.
US initial jobless claims for the week ending June 3rd spiked to 261k from 233k, well above the expected 235k and now at the highest weekly level since October 2021, with the 4wk average rising to 237k from 230k. Weekly data can be choppy, especially as the week included the Memorial Day holiday, but is getting relevance as it comes just ahead of the FOMC meeting next week. The read would likely be that labor market is cooling even as it is still quite tight.
Economists participating in the Bloomberg survey anticipate a modest recovery in China’s CPI inflation during the month of May. Projections indicate an increase to 0.2% Y/Y from 0.1% in April's 0.1 Y/Y. This bounce is anticipated to be attributed to the low base last year and upward pressure on food prices, offsetting a deceleration in energy prices and other non-food items due to sluggish demand. Conversely, consensus forecasts paint a gloomier picture for the PPI in May, projecting a wider deflationary trend attributed to diminished commodity prices. Economists predict a PPI inflation rate of -4.3% Y/Y for May, compared to April's -3.6% Y/Y.
According to the latest Bloomberg survey, economists anticipate a seasonal upswing in new RMB loans during the month of May. Projections indicate a rise to RMB1,550 billion, surpassing April's figure of RMB719 billion. However, it is worth noting that this May's estimate falls short of the RMB1,890 billion recorded in the same period last year, reflecting an year-on-year decrease. Furthermore, the survey highlights expectations for a seasonal increase in new aggregate financing during May, reaching RMB1,900 billion compared to April's RMB1,217 billion. Nonetheless, this projected figure remains significantly below the RMB2,842 billion recorded in May 2022. The primary factor dampening aggregate financing growth stems from the subdued issuance of corporate bonds.
General Motors will adapt its electric vehicles to Tesla’s Superchargers, following Ford’s lead and all but ensuring it will become an industry standard in the US with the three largest companies joining forces. Tesla was up 4.5% for the day, closing higher for the 10th straight day.
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Chief Investment Strategist
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Chief Investment Strategist
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Chief Investment Strategist
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Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy