Marketmind: Markets labor on China, three jobs gauges

[July 06, 2023]  A look at the day ahead in U.S. and global markets from Mike Dolan

World markets have taken a hit from a deepening selloff in China as they await critical health checks on U.S. employment over the next two days.

With U.S. Treasury Secretary Janet Yellen in Beijing just as tit-for-tat trade restrictions ratchet up, Hong Kong's Hang Seng index - now down 12% for the year to date - fell more than 3% on Thursday to record its worst day since March.

Undermined by this week's warning on the sector from Goldman Sachs, Hong Kong-listed Chinese banks fell almost 6% to seven-month lows and clocked its worst two-day performance in almost 12 years.

Shanghai stocks fell by a more modest 0.5%, but there were heavier losses in Tokyo and Seoul and European shares were down more than 1% too. Wall St futures were about 0.5% in the red ahead of the open and the VIX volatility gauge topped 15 for the first time in more than three weeks.

China nerves twinned with tightening bond markets, where U.S. and European government bond yields crept higher and the readout from the Federal Reserve's latest policy meeting showing an increasingly hesitant governing committee restating plans for two more interest rate hikes this year.

"We still have more work to do," New York Fed chief John Williams said separately on Wednesday.

Although Fed futures pricing for the year ahead changed little overnight, two-year U.S. Treasury yields edged up closer to 5%.

The mood in the sovereign debt market more generally was darkened on Wednesday by British gilts, where an auction of 2-year bonds required the highest yield for any gilt sold since 2007 even as UK construction sector sentiment slumped. Firming oil prices and fading annual base effects there didn't help.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 29, 2023. REUTERS/Brendan McDermid

The macro picture in Europe threw up mixed signals - with news of a surge in German industrial orders in May offset by a disappointing stagnation of euro zone retail sales during the same month.

But the acid test of the new month will come with four critical readouts on the still surprisingly buoyant U.S. labor markets - three of which will hit on Thursday and will likely have more impact on Fed thinking than any other indicators this week.

ADP's June take on private sector payrolls, the latest weekly jobless claims numbers and details of May job openings all hit the slate later. The Labor Department's national employment report gets released on Friday.

Consensus forecasts have ADP reporting another 228,000 jobs last month, jobless claims ticking higher last week and vacancies falling in May.

Elsewhere, Meta Platforms launched a direct challenge to Twitter with Threads, garnering millions of users in hours as it sought to take advantage of its rival's much-weakened state after a series of decisions from owner Elon Musk prompted some users to leave.

Events to watch for later on Thursday:

* U.S. June ADP private sector jobs report, weekly jobless claims and May JOLTS job openings data. U.S. June ISM service sector business survey, U.S. May international trade balance.

* Dallas Federal Reserve President Lorrie Logan speaks

(By Mike Dolan, editing by Elaine Hardcastle [e-mail]. Twitter: @reutersMikeD)

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