MARKET WRAPS
Watch For:
No major data scheduled; Oracle earnings
Today's Headlines/Must Reads
- Jerome Powell's Big Problem Just Got Even More Complicated
- Wall Street Firms Up Bets on U.S. Consumers
- U.S. to Allow South Korean, Taiwan Chip Makers to Keep Operations in China
- A Bellwether Climate Case in Montana Seeks to Compel Action Under State Constitution
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Opening Call:
Stock futures rose on Monday as investors prepared for a busy week filled with inflation data and meetings from global central banks, including an interest-rate decision from the Federal Reserve.
The consumer prices index for May will be published on Tuesday. Investors will be hoping to see annual CPI inflation fall further, with economists forecasting a dip to 4%.
Such a decline would likely cement the market's expectations that the Fed will leave interest rates unchanged at a range of 5% to 5.25% after the conclusion of its meeting on Wednesday.
However, analysts noted that recent moves by other central banks means traders should take nothing for granted.
"After a week highlighted by surprise rate hikes... investors could be hawkishly absorbed ahead of a bonanza of central bank meetings this week, " SPI Asset Management said.
And there are also announcements from the European Central Bank on Thursday, and the Bank of Japan on Friday, to navigate.
Still, for now, traders seem pretty relaxed. The CBOE VIX index sits at 14.4, near its lowest since early 2020.
And the CBOE Equity put/call ratio has dropped to 0.50, its lowest in a year as traders increase their relative purchases of bullish bets.
"Investors are flocking into call options because no one wants to miss a further rally in stock markets, but no one is sure that the rally will continue given the fact that the Fed has hiked rates at a record speed since last year, leading to the failure of a couple of U.S. regional banks on the way," Swissquote Bank said.
Overseas stocks broadly rose. The Stoxx Europe 600 gained 0.5%, led by auto and retail stocks, while in Asia, Japan's Nikkei 225 added 0.5% but the Shanghai Composite Index fell 0.1%.
Stocks on the Move
Biogen was up 3% in premarket trading after a committee of expert advisors to the FDA said the biotech company and partner Eisai have proven the efficacy of their Alzheimer's drug Leqembi, voting six to zero to recommend approval of the treatment.
Shares of Chinook Therapeutics rose 67% after it agreed to be bought by Novartis for up to $3.5 billion.
Illumina said CEO Francis deSouza resigned as the company fights regulators over its deal to acquire cancer test maker Grail. Illumina shares gained 0.7%.
Salesforce CEO Marc Benioff will be hosting "Salesforce AI," a 90-minute live-streamed event that starts at 1:30 p.m. ET. Evercore ISI said it expects a focus on data cloud and trust elements at the event. The stock rose 0.8% in premarket trading.
Tesla's bull run looked set to continue, with shares gaining more than 1% ahead of the opening bell.
Forex:
The dollar was flat in early European trade as investors await the Fed's next interest rate decision.
Commerzbank said the central bank is expected to deliver an additional rate rise in the future, but the majority of analysts and market participants don't assume this will be on Wednesday.
"That means whether the dollar will be able to defend the gains made over the past weeks will depend heavily on how clearly the Fed leaves the door open for future rate hikes and of course on whether and if so to what extent the European Central Bank closes the door to further rate hikes on Thursday."
Read Dollar Might Fall if Fed Signals End to Rate Rises
Read Sell Yen Against Swiss Franc Ahead of Bank of Japan Meeting, RBC Says
Bonds:
Core government bonds with maturities between five and 10 years are Carmignac's preference at a time when central banks' tightening cycle is slowing or is approaching a halt, but economic data leave multiple outcomes open.
"Central banks are dependent on economic data, so we must prepare for a variety of scenarios," Carmignac said.
Bonds with shorter maturities are too dependent on volatile economic data, and the confirmation of economic slowdown and of the pace of disinflation will push interest rates to much lower levels across the board.
"Conversely, if the economy shows even greater signs of resilience, this would lead central bankers to raise policy rates further, which in turn would weigh on the longest-term bond yields."
Energy:
Oil futures were close to 1.5% lower in Europe, with concerns about the economic outlook driving prices down and as investors, for now, ignoring signs of a sharply tightening market.
Bank of America said oil was caught between "bearish asset allocators who point to monetary contraction and bullish oil speculators expecting lower inventories."
As a result, Tuesday's inflation figures and the Fed meeting will be key for the direction oil takes.
Read Goldman Sachs Trims Oil Forecasts Despite Saudi Cut
Metals:
Metals were subdued at the start of a busy week of macroeconomic data.
"Gold traders will be reading between the [Fed] lines and looking for any signal from Powell that the U.S. is heading for a recession or that core inflation remains sticky," Royal Mint said.
Aluminum Outlook
Aluminum prices are likely to remain under pressure, according to SDIC Essence Futures.
It said producers in China have been rapidly raising production activity and output volume, and it expects supply excess to emerge in the third quarter, which could pose a downside risk for the metal's prices.
SDIC advises taking profit on any short-term rebound.
TODAY'S TOP HEADLINES
Glencore Approaches Teck Over Its Coal Business
Swiss mining and trading giant Glencore has approached Canadian miner Teck Resources over buying its coal assets, the companies said, providing an alternative to Glencore's original proposal for a full-blown merger between the two miners.
Glencore's original merger offer is still on the table, but the company has indicated to Teck that it would also be willing to buy just the coal business-which it had previously valued at more than $8 billion-if that is the only asset up for sale.
Netflix Subscriptions Jump as U.S. Password-Sharing Crackdown Begins
Netflix's long-awaited crackdown on password-sharing in the U.S. delivered a windfall of new subscribers in its earliest days, according to new data, a sign that the move is bearing fruit despite being unpopular with many users.
According to streaming analytics company Antenna, the streaming giant amassed more new subscriptions in the U.S. between May 25 and 28, shortly after Netflix notified users of the limits, than in any other four-day period since Antenna began compiling such data in 2019.
Shell CEO Takes U.K. Oil Giant's Pitch Direct to Wall Street
LONDON-New Shell Chief Executive Wael Sawan is heading to New York to persuade Wall Street that Europe's biggest energy company deserves more of its respect-and more of its money.
Sawan this week will face investors gathered at the New York Stock Exchange for the most detailed blueprint yet for how he plans to spend a bounty of energy profits, a presentation widely anticipated since he took over the London company at the start of the year.
Wall Street Firms Up Bets on U.S. Consumers
Inflation, slowing growth and rising interest rates often spell trouble for people with car loans and credit-card debt. Wall Street is instead laying more bets that most American borrowers will sail through.
Missed-payment rates on these loans have ticked higher from ultralow levels hit during the pandemic, but they still sit well below the heights reached during past downturns. Over the past few months, the easing of bank stress has helped keep the economy on course, and the recent debt-ceiling deal erased another source of risk.
For Some Companies, Debt Downgrades Followed Payouts to Private-Equity Owners
Private-equity firms took advantage of loose credit markets two years ago to extract record amounts of cash from companies they control. Now some of these companies are paying the price.
The postpandemic period was a golden age for dividend recapitalizations, a type of transaction in which a company borrows money to pay a special dividend to its private-equity owners. In 2020 and 2021, with interest rates hovering near zero, U.S. companies borrowed nearly $177 billion for these transactions, a record sum, according to credit-ratings company Fitch Group.
Companies, Big Investors Sell Shares at Fastest Rate in Years
Companies and their largest investors are selling shares at a pace not seen in years as stock prices rebound.
Since the end of April, companies and private-equity firms have sold more than $24 billion worth of stock in so-called follow-on sales, according to Dealogic. More than $17 billion changed hands in May alone, well above the $6.9 billion monthly average last year. The sales were done at smaller discounts than usual, on average, reflecting a robust market.
Fueled by Long Credit Binge, China's Economy Faces Drag From Debt Purge
HONG KONG-After years of heavy borrowing, many in China are focused on paying down their debts this year-and the result could be weaker growth for a long time to come.
The world's No. 2 economy binged for years on credit to finance everything from canyon-spanning bridges to new apartments.
White House Says China Has Had Cuba Spy Base Since at Least 2019
WASHINGTON-The White House on Saturday said that China has had a spy base in Cuba since at least 2019 and Beijing's efforts to expand its intelligence gathering are ongoing.
It added that the Biden administration has taken steps to counter Chinese expansion of its security footprint globally.
Trump, DeSantis Bring Tailored Messages to GOP Faithful After Indictment of Former President
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06-12-23 0617ET
