Global Market Quick Take: Asia – June 7, 2024

Equities: US equities traded within a narrow band as they awaited this morning's economic updates. US data continues weakening with unit labour cost coming in at 4%, below estimates of 4.7% and initial jobless claims ticking higher at 229K. US futures traded a muted start, with a minor drift toward losses by mid-morning—small caps lagging notably, as signaled by the 0.5% dip in the Russell 2000 Index. Communications, Health Care, and Consumer Staples took the lead, with Utilities, Industrials, and Materials trailing behind—a sign of investor hesitancy about the market's trajectory. Both the ECB and BOC have now cut rates while the Fed is unlikely to cut until September 2024.

FX: The dollar saw some upside earlier on Thursday but it reversed back later and ended the day lower again. Safe havens outperformed, signaling some growth weakness concerns may be setting in and focus is on the US non-farm payrolls data out today. USDJPY wobbled around 156 while USDCHF took a look below 0.89. Mexico’s lawmakers raised reform alarm, which could likely spook carry trades and provide a further floor on low-yielding currencies. MXNJPY dropped to 8.65 from highs of 8.95 yesterday. EURUSD was choppy on the ECB decision but stayed below 1.09 while EURGBP was higher at 0.8515.

Commodities: Oil is poised for a weekly drop after OPEC+ unexpectedly signaled a supply boost this year, leading some member countries to affirm their commitment to market stability.West Texas Intermediate crude remained near $76 a barrel, stabilizing after a 2% increase on Thursday, buoyed by reassurances from OPEC+ members, including Saudi Arabia. Brent settled just shy of $80. OPEC+ officials emphasized the group's readiness to respond to market fluctuations with supply adjustments. Amid concerns about the demand forecast, oil prices have been on a downward trend since the start of April. Yet, regional tensions in the Middle East, particularly Israel's intensified warnings to Hezbollah in Lebanon, suggest potential disruptions that could reignite price increases, as fears of conflict with the Iranian-supported faction grow. Gold advanced as traders looked past fresh US data and the European Central Bank’s widely expected interest rate cut to focus on Friday’s key nonfarm payrolls report for clues on the Federal Reserve’s rate path.

Fixed income: Market participants have ramped up wagers on interest rate reductions over the last week, encouraged by a series of U.S. economic figures falling short of expectations, the Bank of Canada's recent policy easing, and anticipation of a European Central Bank (ECB) rate cut—a move that materialized on Thursday. U.S. Treasury 10-year yields hovered around 4.29%, with swap markets increasingly factoring in a Fed rate cut beginning in November and another likely in December. Conversely, yields on 10-year German bunds climbed by four basis points as the ECB lifted its inflation projections, and policymakers largely dismissed the possibility of an additional cut in July. ECB President Christine Lagarde emphasized that despite a significantly brighter inflation outlook, the central bank intends to maintain "sufficiently restrictive" policy rates for as long as necessary.

In Asia, over half of the analysts tracking the Bank of Japan expect a reduction in the central bank's government bond purchases at the upcoming meeting, with an increasing contingent also predicting a potential interest rate increase come July.

Macro:

• ECB review: Historic move from the ECB to cut rates by 25bps bringing the deposit rate down to 3.75%. While the move was well-telegraphed, but it came with higher growth and inflation forecasts continuing to raise the question whether this may be a policy error. The ECB however signalled a data-dependent approach to from here, not pre-committing to further rate cuts for now.
• US jobless claims rose to 229k from the upwardly revised 220k for the prior week, coming in above expectations again. The rise in the weekly claims is consistent with the softness of the labour market seen recently, although it is not yet something to be overly concerned about but many do expect the claims numbers to tick up throughout the Summer.
• NFP preview: Next key focus today will be the non-farm payrolls. April print showed a gradual cooling in labour market conditions, and several labor market indicators have showed modest softening last month which could get reflected in the May NFP print. Consensus expects headline payrolls to have risen by 180k in May, just a notch above April 175k with unemployment rate steady at 3.9%, the highest level since early 2022. Market reaction to the jobs data may be measured, especially if the print is hot given that it may not be enough to turn the Fed hawkish. If headline jobs growth comes in softer than expected, markets may try to bring forward Fed rate cut expectations, and that can fuel risk-on sending stocks higher and the US dollar lower as long as growth concerns do not over-rule the rate cut narrative.

Macro events: CBR Announcement, RBI Announcement, German Industrial Production (Apr), EZ GDP Revised (Q1), US Jobs Report (May), Canadian Jobs Report (May), Chinese Trade Balance (May).

Earnings: Graham, J.Jill

News:

• US stock futures steady with nonfarm payrolls in focus, Gamestop surges (Investing)
• Japan consumer spending rises in April for first time in 14 months (Investing)
• Possible ‘some fluff’ is keeping Nvidia high, says Damped Spring’s Andy Constan (CNBC)
• European equities beginning to outpace U.S., says Fairlead Strategies’ Katie Stockton (CNBC)
• Short bets against Nvidia stand at $34 billion, S3 Partners says (Yahoo)
• GameStop surges almost 50% as 'Roaring Kitty' teases livestream (Yahoo)
• Oil Extends Recovery as OPEC Taper Worries Ease (Barron’s)
• Stock Market News: Dow Edges Up Ahead of Jobs Report (Barron’s)

For all macro, earnings, and dividend events check Saxo’s calendar.