Morning Bid: Agitated markets wary of June heat

Morning Bid: Agitated markets wary of June heat

A look at the day ahead in the US and global markets by Mike Dolan

This week’s bond market anxiety eased somewhat on Thursday, but investors, wary of massive sovereign debt sales and election uncertainty, are bracing for a choppy June.

And the dollar absorbs it all.

Driving the week’s angst is new evidence of still-strong U.S. economic growth and persistent global inflation that calls into question the degree of interest rate cuts expected to come. for a long time by the markets. Unemployment updates and GDP revision top today’s agenda.

And as the Federal Reserve and other central banks become increasingly hawkish, they complicate heavy debt auction schedules for many governments in the coming month.

This week saw a storm of new Treasuries and signs of some indigestion were evident in tepid demand for the nearly $300 billion in notes and bonds sold Tuesday and some $44 billion in paper at 7 years old yesterday.

The combination of interest rate concerns and debt sales has had detrimental consequences. U.S. 10-year yields rose above 4.75% on Wednesday for the first time in four weeks, although they had retreated slightly from that level ahead of today’s U.S. open.

And while a European Central Bank rate cut is an absolute certainty for next week, the rebound in long-term yields has also spread to Europe. Euro zone benchmark German 10-year yields hit a fresh six-month high on Thursday, with German annual inflation figures for May above forecasts raising concerns ahead of Friday’s euro zone-wide reading. euro zone and lowering ECB easing bets for the whole year.

All of this creates an uncomfortable backdrop for what is shaping up to be the heaviest month of the year for net sovereign debt issuance. New supply of government bonds, net of redemptions and central bank purchases, is expected to reach $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 watching credit rating updates for Italy, France, Greece and Ireland, due tomorrow.

The latest bond market turmoil spilled over into equity markets again, knocking Wall Street stocks back from new highs on Wednesday and also weighing on stocks across Asia earlier.

S&P500 futures remained in the red as of Thursday, with implied volatility for next month rising near 15 for the first time since May 2.

Moreover, the month ahead now reflects a wave of electoral uncertainty: the first televised presidential debate in the United States on June 27, the European Parliament elections from June 6-9, the outcome of the elections in India next week, the Mexican elections this weekend and the preparation for the British elections. 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 showed the African National Congress on the verge of losing its parliamentary majority which he has held for 30 years – paving the way for an uncertain period of disorder. coalition building.

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 enterprise products, making dropping its shares more than 16% after the bell.

ConocoPhillips, America’s largest independent oil and gas producer, has agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega-deals in the energy sector. Shares of Marathon Oil rose 9% on Wednesday while ConocoPhillips fell 4%.

BHP investors have welcomed the world’s largest miner’s decision to abandon a $49 billion plan to buy Anglo American, which rejected three bids from its biggest rival in the past six weeks.

And Saudi Arabia could announce a historic secondary offering of shares in oil giant Aramco on Thursday, pending final approval, people familiar with the matter said.

Key agenda items that could provide direction for US markets later on Wednesday:

*Second U.S. estimate of first quarter GDP and PCE, preliminary first quarter corporate profits, weekly jobless claims, April international trade balance, April wholesale and retail inventories, pending home sales april

* Dallas Federal Reserve President Lorie Logan and New York Fed Chief John Williams speak; Bank of England Governor Andrew Bailey speaks; Gabriel Makhlouf, European Central Bank policymaker and head of the Irish Central Bank, speaks; Reserve Bank of New Zealand Governor Adrian Orr speaks

* Policy decision by the Reserve Bank of South Africa

* NATO foreign ministers hold informal meeting in Prague

* The US Treasury sells 4-week bills

* Profits of US companies: Costco, Best Buy, Dollar General, Hormel Foods, Ulta Beauty, NetApp, Cooper Companies

(By Mike Dolan, editing by Nick Macfie. mike.dolan@thomsonreuters.com)

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