MARKET WRAPS
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No major economic data expected; trading update from SAS
Opening Call:
European stock futures fell after Macron called for a snap vote in the wake of European Union elections. Asian stock benchmarks were mixed amid holidays in parts of the region; the dollar rose; Treasury yields edged higher; while oil futures rose and gold fell.
Equities:
Stock futures fell as French President Emmanuel Macron called for national elections after being trounced by Marine Le Pen's far-right party in European elections.
Right-wing parties put on a show of strength, though Sunday's results still appeared to leave the mainstream pro-EU parties with a lock on power in Brussels.
Meanwhile, traders also dialed back expectations for when the Federal Reserve might cut interest rates following a surprisingly strong U.S. jobs report on Friday.
However, for some investors, the jobs report was a net positive for stocks. If hiring remains strong, Americans will continue to spend-a significant ingredient for corporate earnings growth.
"This has been an earnings-led recovery," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "I look at the jobs report and I look at consumer confidence, and those are the two things I look at to see if the economy is going to do well."
Forex:
The euro fell early Monday after Macron dissolved France's National Assembly and called for a surprise election as traders weighed potential political uncertainty.
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The DXY Index's rebound on Friday from the stronger-than-expected U.S. nonfarm payrolls data looks unsustainable, DBS said. The bank thinks the Fed may reduce the three rate cuts projected for 2024, but that Fed Chair Powell "will set a high hurdle for a hike" despite sticky U.S. inflation.
Bonds:
Treasury yields continued to edge higher early Monday after investors aggressively sold off U.S. government debt Friday, which had sent Treasury yields soaring after a stronger-than-expected jobs report for May.
"We remain in a highly data-dependent environment," said John Madziyire, head of U.S. Treasurys and TIPS for Vanguard's fixed-income group. "As much as we have been focused on data trends, individual data points that deviate from the trend are enough to result in significant market repricing and volatility."
The Fed "will need to see several more months of data to be confident enough to consider rate cuts," he said. "We are not forecasting any cuts in 2024."
Energy:
Oil futures rose early Monday, though ANZ noted upside to prices remains limited in the short term as stockpiles rose in 1Q. The oil market remains dependent on OPEC+ supply policies, and geopolitical issues could underpin volatility in prices in the future, ANZ said, adding that concerns over oil demand could slowly dissipate as the macro environment becomes more positive.
Meanwhile, StoneX Market Intelligence thinks oil prices still have downside momentum, but it is likely that a bottom will be found soon. The recent selloff was prompted by OPEC+'s plans to end some cuts after 3Q, while market participants had expected OPEC+ production cuts to remain in place until the year-end.
Metals:
China's unchanged gold reserves in May doesn't necessarily mean the country is "halting" gold purchases, said StoneX Market Intelligence. Headlines surrounding the unchanged reserve levels were overdone, as they were a "premature supposition," given that numbers from the People's Bank of China have in the past been frequently opaque, with no change reported for a while before a quantum leap.
Reserve building has probably been taking place over time, possibly not directly by the PBOC yet, but through another channel like a sovereign wealth fund, StoneX added. This makes it possible that the precious metal "has gone into government hands in one form or another," it said.
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Copper prices are flat in Asian trading after dropping below the key $10,000/metric ton level last week. The decline was dragged by higher inventories globally and sluggish U.S. employment data, with focus now on U.S. CPI data due Wednesday.
Demand for copper is expected to keep rising in the long run given increasing demand from the electric-vehicle sector and other businesses, which should support prices, Chaos Ternary Asset Management said.
TODAY'S TOP HEADLINES
Americans Really, Really Hate Inflation-and That's a Big Problem for the Fed
Inflation is still higher than the 2% the Federal Reserve is aiming for, and maybe that is OK. That is, if we could just put aside the fact that we hate inflation so much.
Fed policymakers are poised on Wednesday to leave their benchmark federal-funds rate steady at the highest level in more than two decades, and inflation is the biggest reason. Their preferred measure of consumer prices, from the Commerce Department, was up 2.7% from a year earlier in April. That marks an improvement from April 2023, when it was up 4.4%, but still doesn't show the kind of progress investors were hoping for at the beginning of the year, when they were betting the Fed would be cutting by now.
Beneath the Calm Market, Stocks Are Going Haywire
It is easy to look at the piddling daily moves in the S&P 500 and think the market has been oh-so-boring recently. There hasn't been a 2% move since February and the VIX gauge of expected volatility is only up a bit from the postpandemic low reached last month.
Under the calm surface, however, there is furious paddling. Only once in the past 25 years have stocks swung about like this while the overall market stayed so placid. Traders in the options markets are betting on its continuing: Prices indicate the biggest swings in stocks for at least 10 years relative to the prevailing calm for the S&P 500.
Fed won't move interest rates this week, but meeting will still be a feast for economists
The Federal Reserve is widely expected keep its benchmark interest rate steady at the end of their two-days of deliberations on Wednesday, but economists will be watching closely for any clues on the timing of the first rate cut in four years.
A move this week is off the table because Fed officials have stressed the need to be patient as the decline in inflation has shown a lack of progress over the first quarter of the year, said Ian Pollick, head of fixed income strategy at CIBC Capital Markets.
European Union Vote Delivers Shift to Right, in Blow to French and German Governments
Right-wing parties put on a show of strength in European Union elections, prompting French President Emmanuel Macron to call national elections and underscoring German Chancellor Olaf Scholz's position lagging behind two rival parties, according to initial projections.
Sunday's results still appeared to leave the mainstream pro-EU parties with a lock on power in Brussels. The center-right EU political grouping that now leads the bloc looked set to win the most seats in the European Parliament, boosting European Commission President Ursula von der Leyen's hopes of keeping her job for a second term. She has forged a close working relationship with the Biden administration.
France's Macron Dissolves National Assembly After Le Pen Victory in European Vote
PARIS-French President Emmanuel Macron said he was dissolving France's National Assembly in a surprise move that scrambled the country's political firmament Sunday after Marine Le Pen's far-right party trounced his forces in European elections.
Macron said the country will hold new elections for the lower house of the French parliament on June 30 and July 7, a high-stakes maneuver that stunned a nation already reeling from projections based on early ballot counts for Sunday's elections for the European Parliament. The projections showed National Rally garnering around 31% of the vote, the highest score ever for the far-right party in European elections, and twice the support for Macron's Renaissance Party.
Iran Approves Six Candidates to Run for President. All but One Are Conservatives.
Iranian authorities approved a list of six candidates-almost all conservatives-to run in a presidential contest on June 28 following the death of President Ebrahim Raisi in a helicopter crash last month, setting off what will likely be a carefully managed campaign as the country's clerical leaders face mounting domestic and external stress points.
At home, growing numbers of Iranians have chosen not to vote at all in recent elections to mark their dissatisfaction with Iran's strict Islamic rules and a faltering economy. Internationally, Tehran is facing growing pressure over advances in its nuclear program and its support for regional proxies across the Middle East as the war in Gaza drags on.
U.S. to Offer Landmark Defense Treaty to Saudi Arabia in Effort to Spur Israel Normalization Deal
The Biden administration is close to finalizing a treaty with Saudi Arabia that would commit the U.S. to help defend the Gulf nation as part of a long-shot deal to encourage diplomatic ties between Riyadh and Israel, U.S. and Saudi officials said.
But the success of the diplomatic effort hinges on Israel's commitment to a separate Palestinian state, and more immediately an end to the war in Gaza, an unlikely proposition amid months of fruitless cease-fire talks and an Israeli weekend raid to retrieve hostages from the heart of the territory.
For Diamonds, It Matters Who De Beers Hooks Up With Next
Is it more romantic to buy a diamond that formed in the bowels of the earth than one grown in a lab? Young American couples don't think so.
That is awkward for diamond miner De Beers, especially now that it is looking for a new owner. Mining conglomerate Anglo American, which has been a top shareholder in the world's best-known diamond producer for almost a century, wants to sell or separately list it as part of a radical breakup plan.
Netanyahu's Chief Rival Quits Israeli Government to Try to Topple It
(MORE TO FOLLOW) Dow Jones Newswires
06-10-24 0016ET