June S&P 500 futures (ESM23) are down -0.10%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.61% this morning after three major U.S. benchmark indices rallied on Friday as signs of cooling inflation bolstered hopes that the Fed may be close to ending its rate-hiking cycle.
Over the weekend, the Organization of Petroleum Exporting Countries and allies, known as OPEC+, announced that they would cut production by around 1.16 million barrels per day through to the end of 2023, in a surprise move that the United States called inadvisable. On the ground of this, oil prices surged by more than +5% on Monday, brewing some concerns over a potential resurgence in inflation over the coming months.
“While receding broader contagion risks, positive developments in China and expectations that the Fed is nearing the end of the tightening cycle should keep sentiments broadly supported, the oil price gain due to the surprise production cut is a fresh risk to inflation,” said Christopher Wong, a currency strategist at OCBC.
In Friday’s trading session, Wall Street’s major indexes ended sharply higher, with the S&P 500 rising to a 6-week high, the Dow climbing to a 3-1/2 week high, and the Nasdaq 100 notching a 7-1/2 month high.
Data on Friday showed the U.S. Core PCE Price Index, the Fed’s preferred gauge of inflation, stood at +0.3% m/m and +4.6% y/y in February, lower than the forecast of +0.4% m/m and +4.7% y/y, strengthening the case for the U.S. central bank to consider ending its rate-hiking campaign. Additional data showed U.S. Chicago PMI unexpectedly rose to 43.8 in March, stronger than expectations of 43.4. However, the U.S. March Michigan Consumer Sentiment index was revised lower to 62.0 from 63.4, weaker than expectations of 63.2.
Boston Fed President Susan Collins said Friday that the latest inflation data doesn’t change the Fed’s monetary policy path yet. “We still have more work to do and more to see to know that inflation is really on a sustained downward path,” she said. Also, New York Fed President John Williams acknowledged Friday that inflation had moderated but said there’s “more work to do” to bring it down further.
Meanwhile, U.S. rate futures have priced in a 56.7% chance of a 25 basis point rate increase and a 43.3% chance of no hike at the May meeting.
In the coming week, the U.S. Nonfarm Payrolls report for March will be the main highlight as investors look for a fresh update on the health of the labor market. Also, market participants will be eyeing a spate of economic data, including the U.S. Factory Orders, JOLTs Job Openings, ADP Nonfarm Employment Change, Exports, Imports, Trade Balance, S&P Global Composite PMI, Services PMI, ISM Non-Manufacturing Employment, ISM Non-Manufacturing PMI, Crude Oil Inventories, Initial Jobless Claims, Average Hourly Earnings, Private Nonfarm Payrolls, and Unemployment Rate.
In addition, several Fed officials will be making appearances this week, including Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard, and Fed Governor Lisa Cook.
Today, all eyes are focused on the U.S. ISM Manufacturing PMI in a couple of hours. Economists, on average, forecast that March ISM Manufacturing PMI will stand at 47.5, compared to the previous value of 47.7.
Also, investors are likely to focus on the U.S. Manufacturing PMI, which was at 47.3 in February. Economists foresee the new figure to be 49.3.
U.S. ISM Manufacturing Prices will be reported today as well. Economists estimate this figure to be 51.2 in March, compared to the previous number of 51.3.
In the bond markets, United States 10-Year rates are at 3.536%, up +1.30%.
The Euro Stoxx 50 futures are up +0.19% this morning as market participants digested a slew of regional manufacturing activity data. Also, shares of European oil heavyweights jumped on Monday after a surprise production cut by OPEC+ and its allies lifted crude prices. At the same time, National Australia Bank said the latest announcement would likely pressure European economies, where core inflation accelerated last month. European Central Bank President Christine Lagarde said Friday that underlying inflation remains “significantly too high,” suggesting more rate hikes ahead.
Spain’s Manufacturing PMI, Italy’s Manufacturing PMI, France’s Manufacturing PMI, Germany’s Manufacturing PMI, Eurozone’s Manufacturing PMI, and U.K.’s Manufacturing PMI were released today.
The Spanish March Manufacturing PMI has been reported at 51.3, stronger than expectations of 50.1.
The Italian March Manufacturing PMI stood at 51.1, stronger than expectations of 51.0.
The French March Manufacturing PMI was at 47.3, weaker than expectations of 47.7.
The German March Manufacturing PMI came in at 44.7, stronger than expectations of 44.4.
Eurozone March Manufacturing PMI stood at 47.3, stronger than expectations of 47.1.
U.K. March Manufacturing PMI has been reported at 47.9, weaker than expectations of 48.0.
Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.72%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.52%.
China’s Shanghai Composite today closed higher after a private survey showed prices of new homes in 100 Chinese cities rose at the fastest pace in nine months in March as Beijing support measures boosted a pickup in demand in large- and mid-sized cities. A separate survey showed Chinese new home sales in 14 surveyed cities rose +55.7% m/m in March, compared to a growth of +31.9% m/m in February, according to data from the China Index Academy. At the same time, a private sector survey showed on Monday that the Chinese factory activity growth stalled in March amid slowing production and weaker global demand, adding to uncertainty about a post-COVID economic rebound.
The Chinese March Caixin Manufacturing PMI stood at 50.0, weaker than expectations of 51.7.
Japan’s Nikkei 225 Stock Index closed higher after data showed the deterioration of the country’s manufacturing sector eased slightly in March. The index’s upward momentum was fueled by gains in the Precision Instruments, Steel, and Shipbuilding sectors. Meanwhile, shares of Japan Petroleum Exploration Co. rose over +4% after OPEC+ unexpectedly announced on Sunday that it would cut output starting next month. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 0.77% to 16.66.
The Japanese March Manufacturing PMI has been reported at 49.2, stronger than expectations of 48.6.
The Japanese Tankan Large Manufacturers Index stood at 1 in the first quarter, weaker than expectations of 3.
The Japanese Tankan Large Non-Manufacturers Index came in at 20 in the first quarter, in line with expectations.
Pre-Market U.S. Stock Movers
Energy stocks are climbing in pre-market trading following the surprise cut in OPEC+ production. Marathon Oil Corporation (MRO), Devon Energy (DVN), and Occidental Petroleum (OXY) are up more than +4%.
Tesla Inc (TSLA) fell over -1% in pre-market trading after the company announced it had delivered 422,875 electric vehicles in the first quarter of 2023, missing Wall Street expectations for 432,000 deliveries.
UBS Group AG (UBS) dropped more than -3% in pre-market trading after the Swiss daily Tages-Anzeiger reported that the banking giant is poised to reduce its workforce by 20-30% after the Credit Suisse takeover.
Xpeng Inc (XPEV) rose about +2% in pre-market trading after the company said it had delivered 7,002 Smart EVs in March, representing a 17% increase over the prior month.
Vulcan Materials Company (VMC) gained more than +1% in pre-market trading after Goldman Sachs upgraded the stock to buy from neutral.
AGCO Corporation (AGCO) slid about -2% in pre-market trading after Goldman Sachs downgraded the stock to neutral from buy.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Monday - April 3rd
Targa Resources (TRGP), Science Applications (SAIC), Duck Creek (DCT), Riley Exploration Permian (REPX), Eaco (EACO).
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