A look at the day ahead in the US and global markets by Mike Dolan
This week’s bond market turmoil eased somewhat Thursday, but investors wary of heavy Treasury selling and election uncertainty are bracing for a bouncy June.
And the dollar swallows everything up.
Underlying the week’s fears is more evidence of still-vibrant US economic growth and persistent global inflation, which calls into question the extent of rate cuts that markets have long adopted. Updates on unemployment and a GDP revision are at the top of today’s agenda.
And as the Federal Reserve and other central banks become increasingly aggressive, they are complicating heavy debt auction schedules for many governments in the coming month.
This week has seen a blizzard of new government bonds, and signs of some indigestion were evident in tepid demand for nearly $300 billion in notes and bonds sold on Tuesday and some $44 billion in seven-year paper yesterday.
The combination of interest rate concerns and debt sales has taken its toll. US 10-year yields hit the 4.75% mark on Wednesday for the first time in four weeks, although they have retreated slightly from that level ahead of today’s US Open.
And despite the fact that an interest rate cut by the European Central Bank is a certainty for next week, the jump in long-term interest rates also spread to Europe. German 10-year eurozone yields hit another six-month high on Thursday, while above-expected German annual inflation figures for May raised concerns ahead of Friday’s euro-wide reading, pushing the ECB’s easing expectations for the whole were pulled down for years.
All this provides an uncomfortable backdrop to what is expected to be the toughest month of the year for net sovereign debt issuance. The supply of new government bonds, net of redemptions and purchases by central banks, will rise to $340 billion in June for the United States, the euro zone and Britain, according to data from lender BNP Paribas.
The European debt world is also keeping an eye on credit rating updates for Italy, France, Greece and Ireland due tomorrow.
The latest tremors in bond markets have spilled over into stock markets, pulling Wall Street stocks back from new highs on Wednesday and previously weighing on equities in Asia.
S&P500 futures remained in the red on Thursday, with implied volatility for next month falling to near 15 for the first time since May 2.
Moreover, the month ahead reflects a wave of electoral uncertainty: the first US televised presidential debate on June 27, the European Parliament elections on June 6 and 9, the election results in India next week, this weekend’s Mexican elections and the run-up to the British elections. on the 4th of July.
South Africa’s rand fell 1% on Thursday and the country’s benchmark stock index fell more than 2% after snap election results there showed the African National Congress was on course to lose the parliamentary majority it has held for 30 years – which ushered in an uncertain period of messy elections. coalition formation.
In company news, Salesforce on Wednesday forecast second-quarter profit and revenue below Wall Street estimates due to weak customer spending on its cloud and business products, sending shares down more than 16% after the bell.
US independent oil and gas producer ConocoPhillips agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega deals in the energy industry. Shares of Marathon Oil rose 9% on Wednesday, while ConocoPhillips fell 4%.
BHP investors welcomed the decision by the world’s largest miner to walk away from a $49 billion plan to take over Anglo American, which has rejected three proposed offers from its bigger rival in the past six weeks.
And Saudi Arabia could announce a major secondary equity offering in oil giant Aramco later on Thursday, pending final approval, people with knowledge of the matter said.
Key agenda items that could provide direction to the US markets later on Wednesday:
* Second US estimate of first quarter GDP and PCE, preliminary first quarter corporate earnings, weekly unemployment claims, April international trade balance, April wholesale/retail inventories, April pending home sales
* Dallas Federal Reserve President Lorie Logan and New York Fed Chief John Williams speak; Bank of England Governor Andrew Bailey speaks; Gabriel Makhlouf, policymaker of the European Central Bank and chief of the Irish Central Bank, speaks; Reserve Bank of New Zealand Governor Adrian Orr speaks
* Policy decision of the South African Reserve Bank
* NATO foreign ministers hold an informal meeting in Prague
* The US Treasury Department sells four-week notes
* US corporate profits: Costco, Best Buy, Dollar General, Hormel Foods, Ulta Beauty, NetApp, Cooper Companies
(By Mike Dolan, Editing by Nick Macfie. mike.dolan@thomsonreuters.com)
