EMEA Morning Briefing: Sentiment Boosted by Fed Pause Hopes; U.S. Jobs Report Eyed

MARKET WRAPS

Watch For:

France industrial production index; no major corporate updates expected

Opening Call:

European stock futures rose ahead of the U.S. jobs report later today. In Asia, stock benchmarks tracked Wall Street higher; the dollar fell; Treasury yields were little changed; while oil and gold futures rose.

Equities:

European shares may open higher Friday as investors cheered Senate approval of a deal to avert a U.S. government default and focus shifted to the monthly U.S. jobs report later today.

Fresh data overnight showed that the U.S. jobs market remains strong. Hiring was robust again in May, with nonfarm private-sector employment rising by 278,000. Jobless-claims data showed that worker filings for unemployment benefits remain historically low.

Many investors have eased up on bets that the Federal Reserve would raise interest rates again in June, helping drive the stock market higher, traders said. Two policy makers on Wednesday publicly underscored their preference to forgo a hike at the June meeting, barring a sizzling jobs report today. Investors are now betting on a roughly 30% chance that the central bank raises interest rates this month, down from around 50% a week ago, according to CME Group data.

"Things aren't deteriorating as fast as everyone expected," said Danny Kirsch, head of options at Piper Sandler. "People are finding less reasons to be hedged, or to be short."

"The economic data is hitting right in goldilocks land where it's not too hot, but certainly constructive," Art Hogan, chief market strategist at B. Riley Wealth, said.

"We're in a sweet spot right now," Hogan added, explaining that the data are strong enough to assuage fears that the economy is sinking into recession, but not so strong as to pressure the Fed to deliver another interest-rate hike.

Forex:

The dollar fell early Friday after Fed officials signaled they are increasingly likely to hold interest rates steady at their June meeting before preparing to raise them again later this summer.

"If the FOMC is looking for an excuse to not hike key interest rates in June, the ISM manufacturing report should be cited as the reason, since only four of the 18 industries ISM surveyed reported an expansion," said Louis Navellier, chairman of Navellier & Associates.

The May ISM indicated that companies continued to manage their outputs in an effort to match weakening demand.

He said the only silver lining in the May ISM was that the prices component plunged to 44.2%, down from 53.2% in April, which he said is indicative that wholesale prices continued to decline.

Bonds:

Treasury yields were little changed after falling overnight as worries over the federal debt ceiling moved into the rearview mirror and investors turned their attention to economic data for more clues on whether the Fed will keep raising interest rates at its June policy meeting.

"Friday's jobs data will undoubtedly provide trading direction as it's the only data on offer and has historically been associated with 10-15 [basis point] moves in U.S. rates," said Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets.

"That said, the scope for a material repricing of Fed expectations is limited by the recent messaging from policy makers."

That calls for fading any knee-jerk bearishness, particularly for the 10- and 30-year sector, "under the assumption that if there is a market move that significantly disagrees with the interpretation of the FOMC (Federal Open Market Committee), a flock of doves will quickly emerge in the media to correct the divergence," they said.

Energy:

Oil futures rose early Friday. The oil market is likely to face continued uncertainties in June, Galaxy Futures said, citing a new round of OPEC+ meetings that are set to begin, presenting some risk on the policy front.

China's economic recovery pace and the Fed's tightening cycle are also potential swing factors, Galaxy said.

The OPEC meeting "could be a market mover if we see another cut" in production, said Tariq Zahir, managing member at Tyche Capital Advisors. In early April, OPEC+ announced an unexpected, additional reduction in output quotas that went into effect in May.

OPEC wants to see higher markets as market share is being impacted by Russia selling oil to China, Zahir said.

Metals:

Gold futures strengthened in Asia, extending strong gains overnight.

Galaxy Futures remains optimistic about the commodity's near-term outlook, pointing to rebound opportunities for the metal, given continued strength in the U.S. economy and the rising likelihood of a potential pause in the Fed's tightening cycle, which typically makes the dollar less strong and increases investor appetite for other assets.

Galaxy also flagged favorable technical factors, which suggest limited downside from current levels.

-

Copper prices declined after rising sharply in the previous session following the release of better-than-expected economic data from China, which eased concerns about weak demand, ANZ said.

China's Caixin manufacturing PMI showed factory activity improved slightly in May, which helped lift consumer sentiment, ANZ said.

-

Iron-ore futures rose in Chinese trading, extending gains. While near-term sentiment may be improving, China Derivatives Futures think the steelmaking commodity is unlikely to enjoy a sustainable recovery.

Market expectations for domestic steel production remain muted on likely steel output curbs ahead, which could weigh on iron ore demand.

TODAY'S TOP HEADLINES

Senate Approves Deal Raising Debt Ceiling, Averting U.S. Default

WASHINGTON-The Senate passed wide-ranging legislation Thursday that suspends the $31.4 trillion debt ceiling while cutting federal spending, backing a bipartisan deal struck by President Biden and House Speaker Kevin McCarthy to avert an unprecedented U.S. default.

The 63-36 vote reflected support from both Democrats and Republicans, with backers saying the need to raise the nation's borrowing limit outweighed concern about provisions related to military and domestic spending and energy policy, among other contentious issues.

OPEC+ Cuts Could be More Painful

A change in behavior by U.S. oil producers could make a production cut by OPEC and its allies this weekend more effective in boosting oil prices.

OPEC+, which is made up of OPEC and its Russia-led allies, will meet in coming days to decide their production plan for the balance of the year. And the group won't need to worry as much that cutting its quotas will prompt U.S. shale producers jack up their own production to grab market share, says Rystad Energy's Jorge León, an economist who once worked for OPEC.

Hike in May and Go Away? This Fed President Says Yes, At Least for June.

Philadelphia Federal Reserve President Patrick Harker doubled down on his calls for the Federal Reserve to skip an interest-rate hike at the coming June Federal Open Market Committee meeting.

"It's time to just at least hit the stop button for one meeting and see how it goes," Harker said Thursday during an appearance at a National Association for Business Economics event.

Twitter to Face Stress Test This Month, Top EU Tech Regulator Says

European Union regulators plan to subject Twitter to a stress test to determine how well it complies with Europe's new digital-content law, a top EU tech regulator said, ramping up the bloc's preparations for enforcing the West's most far-reaching digital-content law.

A team of roughly five to 10 digital specialists from the EU plan to put Twitter, and possibly other companies, through their content-policing paces during a visit to San Francisco in late June, Thierry Breton, the bloc's commissioner for the internal market, said in an interview.

South Africa's Difficult Choice: Should It Host Putin?

CAPE TOWN, South Africa-This year's summit of leaders from Brazil, Russia, India, China and South Africa has confronted Pretoria with a difficult dilemma: Should it host Russian President Vladimir Putin despite an international warrant for his arrest?

That question loomed over a meeting of foreign ministers from the five Brics nations here Thursday that was attended by Russia's top diplomat, Sergei Lavrov.

Meta Requires Office Workers to Return to Desks Three Days a Week

Meta Platforms employees assigned to an office will have to start coming in three days a week starting in September, as the company shifts to a more structured hybrid schedule.

The move won't affect workers who currently have remote positions, Meta said in a statement Thursday. The three-day mandate only applies to workers already in an office some days. It will take effect Sept. 5.

Twitter's Head of Trust and Safety Resigns

Twitter's head of trust and safety, Ella Irwin, resigned from the company Thursday, she told The Wall Street Journal.

Irwin's departure is the second time someone in that role has left since Elon Musk bought the company in October. Yoel Roth, who had previously served as Twitter's head of trust and safety, left the company in November, and Irwin subsequently took the top job overseeing user content and safety policies.

Broadcom CEO Sees Rising AI Chip Demand. Earnings Were Strong.

Broadcom CEO Hock Tan says generative artificial-intelligence applications will boost demand for the company's chips.

Chip maker Broadcom (ticker: AVGO) provided a revenue forecast for its July quarter above expectations. Its shares also rose in after-hours trading.

Dell Earnings Crush Estimates, But Mixed Guidance Pressures the Stock

Dell posted unexpectedly strong earnings for its fiscal first quarter thanks to revenue that slightly exceeded expectations combined with some big cost reductions for components that were previously in short supply.

(MORE TO FOLLOW) Dow Jones Newswires

June 02, 2023 00:16 ET (04:16 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.