OPENING CALL
Stock futures were weaker on Tuesday, while bond yields steadied, as traders continued to react to the soft manufacturing data which showed the sector contracted for a second consecutive month in May.
"[T]he report was definitely one that dampened optimism about the state of the U.S. economy right now," Deutsche Bank said. "Given the worse-than-expected numbers, investors dialled up their expectations for rate cuts this year."
Markets are not betting on the Federal Reserve trimming borrowing costs at its next FOMC meetings in June and July, but the probability of a 25 basis point cut by September is now priced at 59.9%, up from 55.8% a week ago.
Data due for release on Tuesday include job openings [JOLTS] for April, and factory orders for April.
"It is worthwhile noting that this JOLTS report does highlight conditions in April, reducing its relevance for Friday's jobs report. Nonetheless, with jobs openings expected to deteriorate alongside Friday's payrolls figure, we could yet see further signs that the U.S. economic growth trajectory is cooling," Scope Markets said.
Premarket Movers
GitLab reported strong revenue growth and raised its outlook for the year, though its quarterly net loss widened slightly. Shares fell more than 3%.
Postmarket Movers
Annexon said it would host a conference call Tuesday morning to discuss results from a Phase 3 trial evaluating one of its flagship programs. ANX005, the company's candidate which is being evaluated as a treatment for Guillain-Barré Syndrome, has previously received orphan drug designation and fast track designation from regulators. Shares rose 48%.
HealthEquity raised its full-year outlook for per-share profit and revenue after results came in ahead of Wall Street's expectations in the fiscal first quarter. Shares rose 4.3%.
Lavoro warned that input price deflation had caused the company's margins to shrink in the fiscal third quarter. Shares fell 7.3%.
Other Stocks to Watch
Stellantis's U.S. sales improved significantly in May despite inventories remaining high, with the carmaker showing signs of reversing its negative market-share trend, UBS said.
With countrywide sales rising more than 20% on-year--a better performance than some competitors--it seems like the worst of the company's product-cycle pains are over, UBS said. It noted that inventory levels remain high and selling cars, in some cases, requires lower wholesale prices.
"While it will still take several more months to fully turn over the inventory [and possibly also lower it in absolute terms], we are confident about the commercial success of the new product line-up," UBS said.
Watch For:
Factory Orders for April; Janet Yellen testifies at Senate Appropriations subcommittee hearing; Ford May U.S. sales; General Motors AGM webcast
Today's Headlines/Must Reads:
- The Goal for China's Chip Giant: Cut Out the U.S.
- Big Tech Companies Unplug Stock Market From Reality
- The Dollar Is at Its Strongest Since the 1980s. Can It Last?
MARKET WRAPS
Forex:
Lower job openings "could be the start of a multi-week dollar bear trend, " ING said.
"Yesterday's soft ISM data saw the DXY break lower from this year's well-defined dollar bull trend and softer JOLTS data--giving a firm nod to the disinflation process--could send DXY towards the 103.15/20 area today."
The European Central Bank is set to cut interest rates in June, while the window of opportunity is closing for the Federal Reserve as the election draws closer, Carmignac said.
"The prospects of a 2% differential in policy rates over the coming six months could be an issue for the ECB," Carmignac said, adding that a hold by the Fed until December is increasingly likely.
"Should the Fed hold rates high for longer, and the interest rates differential shift too much in favor of the USD [with the EUR depreciating], this could mean imported inflation down the road for the common market."
Bonds:
Investors should consider turning neutral on Treasurys rather than staying overweight, given the riskier political outlook in the second half of 2024, Bank of Singapore said.
The prospects of a Trump victory in November challenges the view that bond yields will fall this year as the Fed starts cutting interest rates, the bank said. Inflation, Treasury yields and the dollar could rise as fiscal, trade and immigration policies would shift sharply if Trump returns, the bank reckons.
Also, while equities may benefit from the prospect of lower taxes and regulation during a second Trump term, the risk of higher yields could hurt stocks, it added.
Energy:
Oil prices hit a four-month low, signaling OPEC+'s policy move disappointed markets.
According to analysts, the gradual return of 2.2 million barrels a day of oil supply from October 2024 to September 2025 risks leaving the market in surplus next year.
"OPEC+ made it clear that the return of these barrels to the market can be paused if market conditions do not allow for this additional supply," ING said.
"However, one must question how long some members will be willing to hold a substantial amount of supply from the market and give market share away to non-OPEC+ producers."
Metals:
Gold futures slipped but continued to trade within a tight range.
Non-interest yielding bullion found some support from stronger expectations of the Federal Reserve cutting interest rates later this year, as Monday's U.S. data revealed a slowdown in manufacturing and economic activity, broker XS.com said.
Continued geopolitical risks also support short-term expectations, so any declines are likely to remain limited with price drops seen as buying opportunities.
Traders will likely wait for key U.S. data releases this week, including Friday's non-farm payrolls report, along with the Bank of Canada's rate drecision on Wednesday and the European Central Bank's Thursday meeting to provide momentum and determine gold's short-term direction, XS.com said.
TODAY'S TOP HEADLINES
Tesla China's Sales Rose in May Amid EV Demand Recovery
Tesla's sales in China rose in May, as the country's demand for electric vehicles picked up, thanks to government trade-in programs and consumer interest generated by the Beijing Auto Show.
The U.S. EV maker sold 72,573 China-made cars in May, up 17% from a year earlier, preliminary data from the China Passenger Car Association showed Tuesday. However, Tesla's sales dropped 6.5% from April.
Intel CEO Gelsinger Provides New Details on AI PC Chips
Intel CEO Pat Gelsinger made a flurry of chip announcements at the Computex trade show in Taiwan, including announcing new technical details about the AI PC chip code named Lunar Lake, which is expected to start shipping to PC makers in the third quarter.
Amid an increasingly complex and competitive environment for AI-focused chips, the CEOs of Nvidia, Advanced Micro Devices, Qualcomm, and Arm Holdings also showed up in Taipei over the last few days to provide updates on their efforts to produce faster and more powerful AI chips for data center and PC applications.
Hitachi, Microsoft Plan for Multibillion-Dollar AI Partnership
Hitachi and Microsoft announced a multibillion-dollar collaboration to accelerate the adoption of generative artificial intelligence, the latest in a series of partnerships and investments the two companies are undertaking.
As part of the three-year partnership, the Japanese conglomerate will integrate Microsoft products including Microsoft Cloud and GitHub Copilot into Lumada, Hitachi's core digital, software and services business, according to a joint statement by the two companies.
Developers Sit on Empty Lots After Historic Apartment Boom
Seattle-based developer Tyler Carr set out to build apartments in Boise, Idaho, where rents were rising the fastest in the country. In 2021, his company bought land near the growing downtown with plans to develop 104 rental units.
Three years later, his land remains an empty lot. When market conditions deteriorated, his strategy no longer made financial sense. Interest rates and construction costs rose, Carr said, "and those two things really converged to make the project unviable."
Biden's Cease-Fire Plan Seeks to Push Hamas and Israel Into an Agreement Neither Wants
WASHINGTON-By publicly airing a peace plan to settle the war in Gaza, President Biden is hoping to box both the Israeli government and Hamas into talks on halting a war that neither side seems in any rush to end.
The question now, though, is whether they will stay in the box.
India's Narendra Modi Struggles to Hold On to Majority, Early Election Results Show
Indian Prime Minister Narendra Modi and his Hindu nationalist party appeared to be set for a severe setback amid a strong fight from a revived opposition, early Indian election results showed.
The ruling Bharatiya Janata Party alliance should still get the largest share of seats in the 543-seat lower house of parliament and form the government, but Modi's party appeared to be struggling to hold on to an outright majority after a campaign in which the prime minister pledged to win more seats than ever.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
D2L 1Q
Stingray Group 4Q
Economic Indicators (ET):
Nothing scheduled
Expected Major Events for Tuesday
07:55/GER: May Labour market statistics (incl unemployment)
12:55/US: 06/01 Johnson Redbook Retail Sales Index
14:00/US: Apr Job Openings & Labor Turnover Survey
14:00/US: Apr Manufacturers' Shipments, Inventories & Orders (M3)
14:00/US: Jun RCM/TIPP Economic Optimism Index
20:30/US: API Weekly Statistical Bulletin
23:30/JPN: Apr Provisional Labour Survey - Earnings, Employment & Hours Worked
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Tuesday
Bath & Body Works Inc (BBWI) is expected to report $0.31 for 1Q.
BowFlex Inc (BFXXQ) is expected to report $-0.06 for 4Q.
(MORE TO FOLLOW) Dow Jones Newswires
06-04-24 0618ET
