MARKET WRAPS
Watch For:
Canada Building Permits for April
Today’s Headlines/Must Reads
– This Rally Is All About a Few Star Stocks. Some Investors Are Worried.
– Commercial Property Faces Big Interest-Only-Loan Bill
– Analysis: Apple’s Augmented Reality Faces Real Questions
– Major Dam Blown Up in Russian-Occupied Ukraine
Follow WSJ markets coverage here .
Opening Call:
Markets displayed a cautious tone early Tuesday, leaving the major benchmarks just shy of multi-month highs.
There’s a dearth of fresh catalysts for traders to feed off, with no economic data or company results of note due for publication, and no Federal Reserve speakers ahead of the central bank’s policy meeting starting next Tuesday.
Still, investors appear relaxed about the prospects for Fed policy, with the chances of no interest rate rise next week priced at 80%.
Given that rate hikes have tended to hit investor confidence over the past year, the idea of a pause may help explain why the CBOE Vix index sits at 14.72, notably below its long-run average of 20 and flirting with its lowest levels in three years.
But there was a reminder from Australia that central banks can still spring monetary surprises.
The Reserve Bank of Australia on Tuesday delivered its second unexpected 25 basis point rate hike in a row, taking its main borrowing costs to 4.1% and triggering a jump in the Aussie dollar and a slide in bonds and stocks.
Read RBA Announces Further Rate Increase, Sees More on Horizon
Overseas indexes were mixed. In Europe, the Stoxx 600 was close to flat while in Asia, Hong Kong’s Hang Seng slipped 0.2%, the Shanghai Composite fell 1.2% and Japan’s Nikkei 225 rose 0.9%.
Market Insight
For most of the past six months, fed fund futures have priced fewer interest-rate rises than the Fed has signalled, in addition to pricing earlier and more frequent rate cuts, Morgan Stanley Wealth Management said.
This is despite clear indications the Fed favors tackling high inflation by keeping rates “higher for longer” and suggestions that even if it does pause rate increases it won’t look to cut rates any time soon.
“Recent data on employment, economic vibrancy [at least for housing and capital goods] and inflation suggest the rationale for rapid cuts is quickly evaporating,” Morgan Stanley said.
Stocks on the Move
GitLab shares rose 27% premarket after its quarterly earnings beat expectations.
Spotify stock rose 1% after it announced plans on Monday to cut 200 jobs, around 2% of its total workforce, from its podcast division. The company cut 600 jobs earlier this year as part of a restructuring.
Sprinklr stock rose more than 5% as it beat analysts’ estimates in its fiscal first quarter and provided better-than-expected full-year profit and revenue forecasts.
Unity Software shares rose 23% premarket, building on big gains made on Monday after Apple said it was working with the game-development company on the new Apple Vision Pro headset. Apple was 0.4% lower offhours ahead of the second day of its Worldwide Developers Conference
Forex:
The dollar was lower in Europe as Monday’s unexpectedly weak ISM services activity data raised concerns about the economy, which could hinder further Fed rate increases.
“The dollar is being held back by the reluctance of U.S. rate market participants to price in another rate hike as soon as next week’s FOMC meeting,” MUFG said.
MUFG expects the dollar to weaken later this year as inflation will likely slow more quickly than expected.
Commerzbank said the euro is likely to linger around its current level versus the dollar in coming days as the market awaits next week’s policy decisions from the Fed and the European Central Bank.
It said there’s uncertainty over how the ECB will position itself given mixed messaging from policymakers recently and as its members are prevented from making further comments the week before the meeting. Likewise the Fed’s blackout period starts on Wednesday.
Read Material Rebound in AUD/USD Needs More China Recovery, US Disinflation
Bonds:
Bond markets are unlikely to move much before next week’s CPI inflation data, just ahead of the Fed rate decision, Jefferies said.
“Positioning is fairly light in fixed income space suggesting not a huge pressure to unwind.”
Jefferies is happy to hold a small long duration position in Treasurys during this calmer period, it said.
Energy:
Oil prices were more than 1% lower in Europe, unwinding all their gains following Sunday’s OPEC+ meeting, as inventors focus on worries about the global economy.
“The macro outlook continues to be a more important driver for prices than fundamentals at the moment,” ING said.
Read Brent Unlikely to Head Toward $100/bbl This Year
Metals:
Base metals were mixed, with gold marginally higher, as global macro uncertainty dominated.
It is a light data week with consumer price inflation and central bank rate decisions due next week, helping commodities tread sideways, Peak Trading Research said.
However, according to ANZ Research, demand weakness, particularly in China, has already been priced in so goods such as copper aren’t likely to see major pressure.
“While demand remains subdued, we see supply challenges lifting prices. Lower inventories are protecting against downside risks,” ANZ said.
TODAY’S TOP HEADLINES
Apple’s Augmented Reality Faces Real Questions
Apple’s augmented-reality device is finally real. The company has the rest of the year to give consumers a real reason to spend nearly $3,500 on it.
Apple used the opening keynote of its annual Worldwide Developers Conference on Monday to introduce the Vision Pro, an AR headset that also allows for virtual-reality uses. The device has been heavily rumored for months, and the design was mostly in line with previously reported leaks, resembling a pair of high-tech ski goggles tethered with a power cable to a portable battery pack. It will go on sale sometime early next year at a starting price of $3,499.
Former ByteDance Executive Claims Chinese Communist Party Accessed TikTok’s Hong Kong User Data
A former executive at ByteDance, the parent company of the hit video-sharing app TikTok, alleges in a legal filing that a committee of China’s Communist Party members accessed the data of TikTok users in Hong Kong in 2018-a contention the company denies.
The former executive claims the committee members focused on civil rights activists and protesters in Hong Kong during that time and accessed TikTok data that included their network information, SIM card identifications and IP addresses, in an effort to identify and locate the users. The former executive of the Beijing-based company said the data also included the users’ communications on TikTok.
German Manufacturing Orders Fell Unexpectedly in April on Low Foreign Demand
New orders at German factories fell unexpectedly in April, signaling continued declining demand in the country’s key manufacturing sector especially among foreign orders.
Manufacturing orders ticked down 0.4% in April on month, after a plunge of 10.9% in March, according to seasonally and calendar adjusted-data released Tuesday by the German statistics office Destatis.
This Rally Is All About a Few Star Stocks-And Some Investors Are Worried
Major indexes have overcome a series of challenges to power higher this year. But some investors are worried that this performance rests on just a few heavyweight stocks.
The S&P 500 has climbed 11% this year and is poised to enter a new bull market after rising almost 20% from an October trough. Most major indexes in Europe are up more than 10% in 2023, with France’s CAC 40 among those that are hovering near all-time highs.
As major tech stocks head for the moon, investors drain $77.5 billion from equity funds
A small group of technology stocks may be powering the stock market higher, but investors have continued fleeing equity funds in the first five months of 2023 in favor of fixed-income alternatives, according to LSEG Lipper data.
An estimated $114.3 billion was pulled from conventional equity funds this year through the end of May, according to the data, as investors brace for the Federal Reserve’s higher rates to course through the U.S. economy.
Interest-Only Loans Helped Commercial Property Boom. Now They’re Coming Due.
Nearly $1.5 trillion in commercial mortgages are coming due over the next three years, according to data provider Trepp. Many of the commercial landlords on the hook for the loans are vulnerable to default in part because of the way their loans are structured.
Unlike most home loans, which get paid down each year, many commercial mortgages are known as interest-only loans. Borrowers make only interest payments during the life of the loan, with the entire principal due at the end.
Dockworkers Extend Job Actions Delaying West Coast Port Cargoes
Unionized dockworkers throttled cargo operations at several West Coast ports on Monday, extending job actions that have snarled imports at some of the country’s biggest trade gateways and prompting retailers to ask the Biden administration to intercede to keep goods moving.
Port terminal operators said dockworkers deliberately withheld labor or slowed work at container terminals from Los Angeles and Long Beach, in Southern California, to the Port of Seattle.
Major Dam Destroyed in Russian-Occupied Ukraine
KYIV, Ukraine-A major dam and power station in a Russian-occupied part of Ukraine were destroyed Tuesday, with both sides accusing each other of being responsible for an incident that has caused serious flooding, put thousands of homes at risk and potentially threatened the safety of Europe’s largest nuclear power plant.
(MORE TO FOLLOW) Dow Jones Newswires
June 06, 2023 06:11 ET (10:11 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
