Markets feel Friday cheer as signs point to Fed pause

Growing confidence Congress will pass a debt ceiling bill and avert a potentially calamitous default sent US shares broadly higher Thursday, with the S&P 500 and Nasdaq Composite indices both ending at their highest levels since mid-August. Fresh ISM data showed manufacturing activity contracted for the 5^th consecutive month and price pressures eased significantly, reinforcing bets the Fed will pause the tightening cycle this month. As a result, Treasury yields fell, and tech shares got a boost. Attention is now likely to shift to the release of employment data on Friday that could influence the Federal Reserve’s next interest rate moves. Meantime, European equities rebounded from Wednesday’s two-month lows, with the Euro Stoxx 50 up 0.9% after data showed that inflation in the region cooled more than expected in May, raising hopes for a less hawkish ECB. 

Summary for 01.06.2023 

• Most Asian equity markets rose on Friday amid optimism over the approval of a deal to raise the US debt ceiling and avert a default, with Chinese markets rebounding from six-month lows on renewed hopes of an economic recovery in the country. The Hang Seng jumped more than 2%, leading the region higher on a tech-driven rally. The S&P/ASX 200, Nikkei 225 and Kospi indices also advanced. 
• European and US shares are on track to advance as bets for a rate hold by the Fed gather traction. 
• Oil prices rose in Asian trade on Friday but were still set to lose more than 3% this week as demand concerns and an uncertain outlook for OPEC+ production policy weighed on the market. OPEC+ is set to meet over the weekend to decide on output policy, where investors remain split on whether the group would cut production further following mixed signals from critical officials. 
• The US Senate passed legislation to suspend the US debt ceiling and impose restrictions on government spending through the 2024 election, ending a drama that threatened a global financial crisis. The measure now goes to President Joe Biden, who forged the deal with House Speaker Kevin McCarthy and plans to sign it just days before a looming US default. the 63-36 vote on the bill was carried by moderates in both parties, many of whom aired their misgivings about parts of the deal but were convinced that their concerns weren’t worth risking the havoc a default would unleash. 
• The ISM Manufacturing PMI in the US fell to 46.9 in May from 47.1 in April, compared to forecasts of 47. The reading indicated a seventh consecutive month of contraction in the manufacturing sector, as companies manage outputs to better align with demand in the first half of 2023 and prepare for growth in the late summer/early fall period.  
• Private businesses in the US created 278k jobs in May, compared to a downwardly revised 219k in April and well above forecasts of 170k. The services sector added 168kwhile manufacturing lost 48k. On the wage front, pay increases slowed for job changers and stayers. 
• The consumer price inflation rate in the Euro Area fell to 6.1% in May, down from 7.0% in the previous month and below market expectations of 6.3% a preliminary estimate showed. The rate hit its lowest level since February 2022 and was primarily driven by a 1.7% decline in energy prices. Furthermore, the core rate, also eased more than anticipated, reaching 5.3%. 
• Meanwhile, ECB Governing Council member Francois Villeroy de Galhau said yesterday that the Bank’s rapid interest rate increases during the course of last year are starting to have an impact on underlying inflation pressures, and remaining hikes will be “relatively marginal.”  
• Broadcom late Thursday reported better-than-expected fiscal second-quarter results, driven by demand for next-generation technologies, while the chipmaker issued an upbeat revenue outlook for the current three-month period. Shares were down 1.8% in extended trade on Thursday. 
• Macy’s Inc fell short of revenue estimates for its most recent quarter and cut its full-year earnings and revenue guidance. However, its shares were still up 1.3% yesterday. 
• Salesforce posted better-than-expected quarterly earnings but also higher costs, and the software company didn’t raise its full-year revenue outlook. Its shares fell nearly 4.7% on Thursday.