Monday, June 1, 2020

US Stocks Rise in May, But Markets Seem Nervous Again

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News shaping
the markets today

     

What’s happening: US stock indices ended mostly higher on Friday, recording strong gains for the month.

What happened: With various states across the US lifting lockdown restrictions late last month, investor sentiment turned positive on hopes of an economic recovery.

US stock markets recorded a steep rise last week, as businesses across the country restarted their operations. The Nasdaq 100 was among the best performing last month, surging close to 7%, despite recoding limited gains last week.

While people have started feeling more comfortable, another shocking incident hit investor sentiment over the weekend, reigniting fears of an economic downturn.

Why it matters: In May, investors had started feeling optimistic about the easing of lockdown restrictions and various stimulus measures announced by the US government and central banks across the world.

US stocks recorded sharp gains in May. The Dow rose by 4.3% last month, with 3.8% gains last week. The S&P 500 logged a monthly rise of 4.5%, with 3% gains for the week. The Nasdaq 100 notched the strongest advance last month, rising 6.8% in May, with a weekly gain of 1.8%.

A dampener to market sentiment came in the form of the US President Donald Trump continuing to accuse China on the way it handled the pandemic, which has infected more than six million people globally. The Trump administration also came down heavily on China for imposing national security law in Hong Kong to tighten its control over the special administrative region. The announcement added fuel to the fiery tensions between Washington and Beijing.

President Trump announced plans to hold a press conference on Friday to discuss his latest moves related to China. This made investors concerned about the prospects of a trade deal between the two countries. Trump announced plans to suspend the entry of some Chinese nationals into the country and cut ties with the WHO (World Health Organization) during the conference. Much to the relief of investors in financial markets, the US President did not mention anything about increased tariffs, or the trade agreement signed with China earlier in January.

Investors are worried after violent protests erupted in the US over the death of an unarmed African American, who was killed in Minneapolis by police. The protests resulted in brutal clashes between the police and the public in various cities, further impacting efforts to recover from the pandemic. The protests also slammed retailer stores, including Walmart, Target and Nike, which are still trying to recover from the covid-19 crisis.

What to Watch: Investors will be keeping an eye on the impact of the violent protests that led to several retail outlets being damaged and looted over the weekend. The focus is likely to shift to the reopening of the economy and businesses restarting operations and turn investor sentiment positive.

Investors also await a basket of economic reports from the country, including manufacturing PMI, ISM manufacturing index and construction spending. The IHS Markit manufacturing PMI is expected to rebound to 39.8 in May, from 36.1 in April, while the ISM Manufacturing PMI is likely to rise to 43 in May, from a previous reading of 41.5. Construction spending, which increased 0.9% to an annual rate of $1.360 trillion in March, is expected to decline by 6% in April.

Markets will continue to assess the coronavirus figures, with the number of cases exceeding 6 million globally. The US has confirmed over 1,789,360 cases so far, with around 104,350 deaths.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of manufacturing PMI data from the country.

Context: The loonie slipped versus the US dollar on Friday but recorded overall gains for the week and month, despite a bleak economic growth report from the country. Investors were looking forward to the Bank of Canada’s policy decision scheduled for this week.

Details: Canada’s GDP (gross domestic product) declined at an annualised rate of 8.2% for the first quarter, with the covid-19 pandemic resulting in the closure of most non-essential businesses.

The Bank of Canada is expected to announce its interest rate decision on Wednesday, with Tiff Macklem taking over as the new governor, following the retirement of the current governor, Stephen Poloz, on Tuesday.

Crude oil, Canada’s largest export, posted strong gains on Friday due to a rise in fuel demand as economies gradually reopen. WTI crude oil futures climbed 5.3% to $35.49 a barrel in the previous trading session.

The loonie traded down 0.1% to 1.3775 versus the greenback. For the week, the Canadian dollar gained 1.6% as investor sentiment was lifted by prospects of an economic rebound. The Canadian dollar also recorded gains for the second consecutive month in May.

What to watch: Traders will be keeping an eye on Canada’s manufacturing PMI, which is expected to influence the direction of the country’s currency. The IHS Markit manufacturing PMI for Canada had declined steeply to 33 in April, from 46.1 in March. The Bank of Canada will also be in focus, as the central bank is widely expected to hold interest rates unchanged at 0.25% at the upcoming meeting.

Investors will continue to focus on coronavirus cases, with Canada confirming over 92,470 cases with around 7,370 deaths.

Other Markets: European indices were trading higher at 9am GMT, with the FTSE 100, STOXX Europe 600 and French 40 up by 1.3%, 0.9% and 1.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s total vehicle sales, Mexico’s business confidence and manufacturing PMI, Brazil’s manufacturing PMI and balance of trade as well as Argentina’s tax revenue.