Morning Bid Americas: Relief (mostly) everywhere

Loews

06/05/2024 10:16

A look at the day ahead in U.S. and global markets from Dhara
Ranasinghe.
    
The relief across world markets as signs of a softening in the
U.S. jobs markets strengthens the case for Federal Reserve rate
cuts to start later this year remains palpable. 
    Not only did U.S. 10-year Treasury yields end Friday down 17
basis points  US10YT=RR , in their biggest weekly drop of the
year, but the S&P 500 stock index had its best day in over two
months. 
    Investors in Asia picked up the buy-baton on Monday, sending
MSCI's broadest index of Asia-Pacific shares outside Japan
 .MIAPJ0000PUS  to its highest in over a year and government
bond yields in Europe are lower again  DE2YT=RR .
    For sure, public holidays in Japan and Britain make for
quieter trade, but there is little doubt the mood music in
markets has changed after Friday's news that the U.S. economy
created 175,000 new jobs in April, the lowest since October.
    Money markets are back to pricing in roughly two 25 bps
Federal Reserve rate cuts this year. Last week, traders came
close to no longer fully pricing in one cut for the year as
nervous markets started to position again for higher for longer
rates.
    Market attention now turns to the Fed's Senior Loan Officer
Survey, a closely-watched indicator of credit conditions,
expected later in the session. 
    The last survey, released in February, showed U.S. banks
anticipated an increase in demand for loans as rates fall this
year.
    One key question is whether the improvement in bank lending
conditions could be undermined by the rise in government
borrowing costs this year, with two-year Treasury yields up 55
bps.
    It is also notable that the relief felt across world markets
after the latest U.S. jobs data did not last long for some.
While dollar/yen fell sharply after those numbers on Friday as
markets renewed Fed rate-cut nets, the currency par is 0.5%
firmer in early European trade not far off 154.
    That essentially means the Bank of Japan, which was
suspected to have intervened in currency markets last week to
shore up a weak yen, still has its work cut out.
    Given that Japanese authorities picked last week's quiet
periods to intervene in the currency market, traders will be on
high alert through the day.
    Elsewhere, China's yuan surged to a six-week high against
the dollar, catching up on the first trading day after the long
Labor Day holiday, as the central bank set a much strengthened
midpoint fixing to track offshore movements.
    Apple shares  AAPL.O , meanwhile, could be in focus after
news at the weekend that Berkshire Hathaway  BRKa.N 
significantly reduced its enormous stake in the iphone maker. 
    
    Key diary items that may provide direction to U.S. markets
later on Monday:
    * U.S. April employment trends, New York Fed's Global Supply
Chain Pressure Index for April
    * New York Federal Reserve President John Williams, Richmond
Fed President Thomas Barkin speak. Swiss National Bank Chair
Thomas Jordan speaks
    * Chinese President Xi Jinping in France as part of
week-long visit to Europe 
    * U.S. corporate earnings: Tyson Foods, Loews, Microchip
Technology, Axon, Vertex Pharmaceuticals, Realty Income, Simon
Property, FMC, International Flavors & Fragrances, Progressive
Corp, Williams
    * U.S. Treasury auctions 6-month bills

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Nonfarm payrolls    https://reut.rs/44o7Vgv
Markets remain on yen intervention watch    https://reut.rs/4a7WWZP
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 (Reporting by Dhara Ranasinghe; editing by Ed Osmond)
 ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))