Narrow Stock Market Rally Paused On Monday

Barry Adams
05 Jun, 2023
New York City

Stocks turned lower after investors shifted focus to rate path and inflation worries after the passage of debt ceiling bill, removing critical debt default uncertainties. 

The S&P 500 and the Nasdaq indexes turned lower after Apple Inc lost early gains in the afternoon. 

Apple announced a slew of new products including virtual reality headset at its annual Worldwide Developers Conference and also said all newer Mac models are made with its chips.

Intel declined 3% after Apple's homemade chip announcement.   

President Joe Biden signed the Fiscal Responsibility Act approved by the House and Senate, averting the June 5 debt default deadline set by the U.S. Treasury. 

Despite the rally over the last ten weeks, largely driven by tech stocks and AI chip enthusiasm, the market has a long list of worries to overcome. 

Weakening corporate earnings outlook, slower economic growth, stubborn inflation, and how high rates are likely to go and how long rates are likely to stay elevated, are just a few of the worries dominating the list. 

As the Fed's next policy meeting approaches, a growing number of investors are forecasting rates to go higher by 25 basis points after the 2-day meeting ending on June 14. 

In commodities news, the price of crude oil jumped as much as 4% but most of the session's gains evaporated. 

After the weekend meeting of OPEC and allied nations, ministers agreed to hold recently agreed production cuts for the current year, but Saudi Arabia unilaterally decided to lower production amid weak global demand growth. 

 

Crude Oil Rebounded 

Crude oil rebounded as much as 4% before receding from the day's high in Asian markets after Saudi Arabia pledged to cut additional output from July. 

After a tense meeting of OPEC+ nations over the weekend, Saudi Arabia announced voluntary oil production cuts by 1 million barrels a day to 9 million barrels a day. 

OPEC+ nations produce 40% of the world's crude oil and any change in policy could impact oil prices worldwide. 

Under the agreement, the United Arab Emirates was permitted to increase its output next year and Russia will hold its monthly production target.  

Brent crude jumped 0.7% to $76.84 a barrel and WTI crude  increased 1% to $72.87 a barrel. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.3% to 4,270.32 and the Nasdaq Composite increased 0.3% to 13,210.60. 

The yield on 2-year Treasury notes decreased to 4.49%, 10-year Treasury notes edged down to 3.69% and 30-year Treasury bonds held at 3.88%. 

Crude oil increased $1.74 to $73.64 a barrel and natural gas prices increased 9 cents to $2.26 a thermal unit. 

 

U.S. Stock Movers

Apple Inc increased 1.5% to $183.30 as investors looked forward to new product announcements at its annual developers conference starting today. 

Tesla Inc gained 2.3% to $218.96 and technical traders boosted the stock after the 15-day average crossed its 50-day average, supporting the case for higher stock price ahead. 

Starbucks Inc advanced 0.9% to $100.37 after a private survey showed China's service sector expanded for the fifth month in a row in May. 

For the coffee retailer, China is the second largest market with more than 6,000 locations. 

UBS Group AG declined 0.1% to $19.96 after the company said the acquisition of Credit Suisse is likely to be completed by June 12. 

Chewy Inc extended  its Friday's gains by 2.2% to $36.31 after the pet food  retailer reported better than expected results last week..

 

European Markets Closed Down

European markets lacked direction in Monday's trading and investors digested mixed economic data. 

Averages in Frankfurt, Paris and London hugged the flat line and investors reacted positively to a surprise rise in Germany's trade surplus. 

Business growth in the Euro Area slowed in May, according to the latest survey released by the S&P Global. 

HCOB's final Composite Purchasing Managers' Index dropped to a three-month low 52.8 in May from 54.1 in April. 

Any reading above 50 indicates expansion. 

The HCOB Italy Services PMI fell to 54 in May from 57.6 in April, which was the highest level in 20 months.

The growth in the service level eased but was supported by a rise in demand and the company's expanded payrolls.

Service sector growth in Spain also eased from the 17-month high reading in April but remained elevated and the sector expanded for the fifth month in a row. 

The HCOB Spain Services PMI eased to 56.7 in May 2023 from 57.9 the month before, slightly below market expectations of 56.9.

The Turkish inflation rate dropped for the seventh month in a row to 39.6% in May, the Turkish Statistical Institute reported Monday. 

Inflation eased from 43.7% in April because of the pre-election promise of free natural gas for all households for one year by President Erdogan. 

In overseas news, U.S. President Joe Biden signed the debt ceiling bill suspending the debt limit for the next two years, just in time to avoid debt default on June 5. 

After weeks of political wrangling and tense negotiations, U.S. lawmakers approved bipartisan agreement, which kept global financial markets on edge.

 

Germany's Trade Surplus Widened In April

Germany's trade surplus widened to Є18.4 billion in April from Є14.9 billion in March, the Federal Statistics Office of DeStatis reported Monday.  

The trade surplus was the largest since January 2021. 

On a calendar and seasonally adjusted basis, exports increased 1.2% to Є130.4 billion from the previous month and imports fell 1.7% to Є112.0 billion, driving the trade surplus higher.  

From a year ago, exports increased 1.5% while imports fell 10.3%. 

Exports to the EU member states increased 4.5% from March but declined to countries outside the EU, falling 5.2% to the UK and 17.8% to Russia. Exports to the U.S. increased 4.7% and to China surged 10.1% respectively. 

Imports from the EU nations declined 0.4% and from other countries declined 3.0%. 

Imports from Russia declined 7.6%, the UK fell 6.4% but increased from the U.S. by 2.9% and China by 1.9%. 

Most imports came from China valued at Є12.9 billion, followed by Є8.0 billion from the U.S. and Є2.8 billion from the U.K. 

 

Crude Oil Rebounded 

Crude oil rebounded as much as 4% before receding from the day's high in Asian markets after Saudi Arabia pledged to cut additional output from July. 

After a tense meeting of OPEC+ nations over the weekend, Saudi Arabia announced voluntary oil production cuts by 1 million barrels a day to 9 million barrels a day. 

OPEC+ nations produce 40% of the world's crude oil and any change in policy could impact oil prices worldwide. 

Under the agreement, the United Arab Emirates was permitted to increase its output next year and Russia will hold its monthly production target.  

Brent crude jumped 0.7% to $76.84 a barrel and WTI crude  increased 1% to $72.87 a barrel. 

 

Europe Indexes & Yields 

The DAX index decreased 0.5% to 15,963.89, the CAC-40 index decreased 1.0% to 7,200.91, and the FTSE 100 index fell 0.1% to 7,599.99. 

The yield on 10-year German Bunds inched higher to 2.38%, French bonds traded higher to 2.93%, the UK gilts edged up 4.22% and Italian bonds increased to 4.02%.

The euro edged lower to $1.068, the British pound to. $1.239 and the Swiss franc to 91.07 cents.

Brent crude increased $0.40 to $75.54 a barrel and the Dutch TTF natural gas increased €4.76 to €28.48 per MWh.

 

Europe Stock Movers 

Resource companies traded higher in London trading following a rise in energy prices. 

Anglo American and Antofagasta and Glencore increased between 0.5% and 1.5%. BP Plc  and Shell Plc advanced 1.5%.  

Polymetal International PLC declined 2% to 186.22 pence after the company said it plans to divest its Russian business. 

In addition, the Russian subsidiary's chief executive and chief financial officer have resigned. 

UBS AG increased 1.4% after the Swiss bank said that the Credit Suisse takeover is likely to be completed as early as June 12. 

SBB jumped 6% after the troubled Swedish property group's chief executive said that the company is not going to sell off its properties at a discount. 

Sirius Real Estate Ltd increased 4.2% to  88.43 pence after the company reported a decline in its annual profit and increased its dividend. 

Hunting Plc advanced 1.6% to 225.60 pence after the company signed a 10-year strategic partnership with China-based Zhejiang Jiuli Hi-Tech Metals Co.