A look at the day ahead in the US and global markets by Mike Dolan
June begins with a series of big election results around the world – with major landslides for favored candidates in Mexico and India – as Wall Street has perked up in a key week for the US labor market.
The peso was somewhat unnerved by the sheer magnitude of Claudia Sheinbaum’s victory in Mexico’s presidential election, falling to its lowest level in five weeks ahead of Monday’s opening.
Under the guidance of outgoing popular leader Andres Manuel Lopez Obrador, former Mexico City Mayor Sheinbaum won a historic nearly 60% of the vote and the ruling coalition was on track for a possible two-thirds supermajority in both houses of Congress – let it be pass constitutional reforms without opposition.
On the other side of the world, Indian shares hit record highs, the rupee rose and bond yields fell, while exit polls signaled a decisive mandate and a third term for Prime Minister Narendra Modi. The polls showed Modi’s Bharatiya Janata Party planning to increase its 303 seats in the 543-member lower house and likely win a two-thirds majority – also enough to initiate changes to the constitution.
set a firmer tone on Monday, with analysts expecting coalition negotiations to be the main driver after the African National Congress failed to win a majority for the first time in 30 years last week – securing just 40% of the vote in the final count . There will also be elections for the European Parliament at the end of this week.
Back on Wall St, the new month started in better spirits than the shaky last week of May – thanks in part to a late rally in US stocks on Friday, amid hopes that the economy and inflation had cooled enough for the Federal Reserve to to relax later this year.
Perhaps partly related to the month-end repositioning, the rally marked the biggest daily gain for the Dow Jones blue-chip index this year and also dragged it into positive territory. were higher again before today’s bell.
The release of the Fed’s favorite PCE inflation gauge was broadly as expected, even as economists debated which part of the numbers to focus on.
For example, the six-month annualized growth rate of core PCE rose to 3.2% – the highest level since July. But the Dallas Fed’s so-called “trimmed average” PCE inflation cut has fallen to 2.7% from 3.3% in March.
Choose.
But attention drifted toward the details of the report, which showed a weakening in consumer spending — which is responsible for more than two-thirds of U.S. economic activity — as well as a decline in industrial business activity in the May Chicago PMI index , far below expectations.
The ISM Manufacturing Survey figures for the past month will be released later on Monday, but the week will focus on Friday’s May employment report and a number of labor market updates leading up to it.
Meanwhile, the Atlanta Fed’s real-time ‘GDPNow’ estimate for US growth this quarter fell almost a full percentage point over the course of the week to 2.66%.
The full picture was enough to push US Treasury yields further back from last week’s peaks, even as last week saw a worrying resurgence in the so-called ‘term premium’ on holding longer-term debt to its most positive since November. .
However, there was little disruption in markets after OPEC+’s weekend decision to extend the bulk of its deep oil production cuts well into 2025, as the group tries to strengthen the market amid tepid demand growth and rising rival U.S. production.
The dollar was higher to start the week – partly as the euro braced for Thursday’s long-telegraphed European Central Bank rate cut.
The spread between yields on French and German 10-year government bonds narrowed slightly even after Standard & Poor’s downgraded its rating on French government debt late Friday – a move that market participants said was widely expected.
The cut reflects S&P’s projection that, contrary to previous expectations, French government debt as a percentage of GDP will rise due to larger-than-expected budget deficits in the 2023-2027 period.
European and Asian shares were mostly higher, with the Chinese mainland index again a notable underperformer.
Online fashion company Shein is preparing to submit a prospectus for approval to the U.K.’s Financial Conduct Authority, ahead of a possible London initial public offering that could value the China-founded company at about 50 billion pounds ($63.70 billion) , Sky News reported on Sunday.
The confidential filing could take place as early as next week, the report said, citing sources. The fast-fashion company has stepped up preparations for its London stock exchange listing after its bid to spin itself off in New York faced regulatory hurdles and resistance from U.S. lawmakers.
Key agenda items that could provide direction to the US markets later on Monday:
* US manufacturing surveys from ISM and S&P Global in May, construction spending in April
* US Treasury auctions 3 and 6 month notes
(By Mike Dolan, editing by David Evans mike.dolan@thomsonreuters.com)
