Morning Bid: Wall St eyes election-strewn June, jobs week

[June 03, 2024]  A look at the day ahead in U.S. and global markets from Mike Dolan

June kicks off with a series of big election results around the world - with big landslides unfolding for favored candidates in Mexico and India - while Wall Street has perked up in a key week for the U.S. labour market.

The peso was slightly unnerved by the sheer scale of Claudia Sheinbaum's win in Mexico's presidential election, slipping to a five-week low ahead of Monday's open.

Mentored by popular outgoing leader Andres Manuel Lopez Obrador, former mayor of Mexico City Sheinbaum took an historic near 60% of the vote and the ruling coalition was on track for a possible two-thirds super majority in both houses of Congress - allow it to pass constitutional reforms without opposition.

On the other side of the world, Indian shares set record highs, the rupee gained and bond yields dropped as exit polls indicated a decisive mandate and a third term for Prime Minister Narendra Modi. The polls showed Modi's Bharatiya Janata Party set to increase its 303 seats in the 543-member lower house and likely get a two-thirds majority - also enough to initiate amendments to the constitution.

South Africa's rand firmed a touch on Monday, with analysts expecting coalition negotiations to be the main driver after the African National Congress failed to secure a majority for the first time in 30 years last week - gaining as little as 40% of the vote in the final count. European Parliament elections are also due at the end of the week.

Back on Wall St, the new month kicked off in a better mood than the wobbly final week of May - in part thanks to a late rally in U.S. stocks on Friday amid hopes the economy and inflation were cooling enough to allow the Federal Reserve ease later this year.

Perhaps partly related to month-end re-positioning, the rally marked the biggest daily gain for the Dow Jones blue-chip index this year and dragged the S&P500 into positive territory too. S&P futures were higher again ahead of today's bell.

The release of the Fed's favored PCE inflation gauge was broadly as expected - even though economists argued over which slice of the numbers to focus on.

The six-month annualized growth rate of core PCE, for example, rose to 3.2% - its highest since July. But the Dallas Fed's so-called "trimmed mean" PCE inflation cut eased to 2.7% from 3.3% in March.

Take your pick.

But attention strayed more to details of the report showing a weakening of consumer spending - which accounts for more than two-thirds of U.S. economic activity - and also a cratering of manufacturing business activity in May's Chicago PMI index far below forecasts.

ISM's manufacturing survey readings for last month are due out later on Monday - but the week will be dominated Friday's May employment report and several labor market updates ahead of that.

A trader arrives at the New York Stock Exchange (NYSE) on Wall St. in New York, U.S., March 20, 2020. REUTERS/Lucas Jackson

In the meantime, the Atlanta Fed's real-time "GDPNow" estimate for U.S. growth this quarter slipped back almost a full percentage point over the week to 2.66%.

The full picture has been enough to drag U.S. Treasury yields back further from last week's peaks, even though there's been a worrying re-emergence last week of the so-called "term premium" on holding longer-term debt to its most positive since November.

There was little disturbance in crude oil markets, however, from the weekend decision by OPEC+ to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth and rising rival U.S. production.

The dollar was higher to start the week - in part as the euro brace's for Thursday's long-telegraphed European Central Bank interest rate cut.

The gap between French and German 10-year government bond yields narrowed slightly even after Standard & Poor's cut its rating on France's sovereign debt late Friday - a move market participants said had been widely expected.

The downgrade reflects S&P's projection that, contrary to its previous expectations, France's general government debt as a share of GDP will increase as a result of larger-than-expected budget deficits over 2023-2027.

European and Asia shares were mostly higher, with China's mainland index a notable underperformer yet again.

Online fashion firm Shein is preparing to file a prospectus with Britain's Financial Conduct Authority for approval ahead of a potential London float which could value the Chinese-founded firm around 50 billion pounds ($63.70 billion), Sky News reported on Sunday.

The confidential filing could take place as soon as the coming week, the report added, citing sources. The fast-fashion company stepped up preparations for its London listing after its attempt to float itself in New York faced regulatory hurdles and pushback from U.S. lawmakers.

Key diary items that may provide direction to U.S. markets later on Monday:

* US May manufacturing surveys from ISM and S&P Global, April construction spending

* US Treasury auctions 3-, 6-month bills

(By Mike Dolan, editing by David Evans [e-mail])

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