* Major U.S. indexes gain; S&P 500 sets new highs
* Healthcare leads S&P sector gainers; financials weakest
group
* Dollar slips; gold, crude rise; bitcoin off ~2%
* U.S. 10-Year Treasury yield ~1.44%
June 10 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
S&P 500 NOTCHES RECORD CLOSE AMID YIELD SLIDE (1602 EDT/2002
GMT)
Major U.S. equity indexes shrugged off hotter-than-expected
inflation data, preferring instead to put their faith in the -
"it will prove transitory camp."
With this, the S&P 500 index notched new record
intraday and closing highs. Additionally, the Dow
edged higher, and the Nasdaq Composite ended
above a key Fibonacci retracement zone, and slightly above a
resistance line that has been hindering gains since late May.
However, small caps were less impressed. The Russell 2000
finished down for a second straight day after failing to
set a new high earlier in the week. And the economically
sensitive DJ Transports ended at a fresh 6-week low.
This as the U.S. 10-Year Treasury yield tumbled
below 1.45%, to its lowest level since early March of this year.
Perhaps not surprisingly, amid the decline in yields, S&P
500 growth outperformed S&P 500 value. Indeed,
growth is on pace for its best week relative to value since
early April.
Here is Thursday's closing snapshot:
(Terence Gabriel)
*****
ADJUSTMENTS TO KEEP FED POLICY RATE IN TARGET RANGE NOT
IMMINENT (1515 EDT/1915 GMT)
U.S. Federal Reserve policymakers should hold off on hiking
reverse repurchase (RRP) and interest on excess reserves (IOER)
rates when it meets next week, according to John Canavan, lead
analyst at Oxford Economics.
Those two rates help keep the effective federal funds rate
(EFFR), the central bank's critical policy rate,
within a target range of zero to 0.25%.
The EFFR dipped to 0.05% at the end of May, sparking
speculation that the Fed would raise the 0% RRP rate and the
0.10% IOER rate. But the EFFR quickly rose back to 0.06%, where
it stayed for most of May and so far in June.
"We're getting close to where the Fed historically would
make a change, but typically you would need the effective fed
funds rate more consistently at around 5 basis points before the
Fed, at least in the past, has chosen to make such an
adjustment," Canavan said.
He added that the rate could briefly fall again at the end
of June like it did when May and April ended, noting "these
one-day breaks aren't necessarily a sign that the effective fed
funds rate is risking a shift out of the target range."
Meanwhile, some of the factors driving a flood of cash that
is pressuring short-term rates have peaked as the pay down of
Treasury bills is expected to shrink over the next couple of
months and federal aid payments to states and local governments
under the American Rescue Plan Act are largely complete,
according to Canavan.
Still, he said the possibility of RRP and IOER adjustments
remain amid a glut of cash with the Fed's daily reverse
repurchase operation reaching a record-high of nearly $535
billion on Thursday.
(Karen Pierog)
*****
U.S. RATES MARKET PRICED FOR DOVISH FED NEXT WEEK (1326
EDT/1726 GMT)
The U.S. rates market has priced in a dovish Federal Reserve
at next week's monetary policy meeting. TD Securities in a
research note said it believes that the Fed is not ready to
communicate the start of its tapering just yet. It expects no
tapering announcement until March 2022.
"Action will be signaled well in advance, of course, but we
don't expect anything that could be construed as a taper
countdown signal until at least the September meeting," TD said.
Any tightening is not expected until 2024, the Canadian bank
said, until a one-year tapering period is completed. It added
that the Fed's tightening criteria would be a lot stricter than
the tapering standard.
Given this scenario, TD said U.S. 10-year yields are
expected to be in the 1.50%-1.75% range over the next few
months.
(Gertrude Chavez-Dreyfuss)
*****
G7 TAX MAN STILL A LONG WAY FROM THE BANK (1300 EDT/1700
GMT)
Group of Seven finance ministers may have agreed on a global
corporate tax regime, but full implementation and accompanying
higher government revenues are years away, according to the
Eurasia Group.
Eurasia analysts note two "pillars" of the current
agreement. "Pillar 1" would locally tax major multinational
companies at 20% of profits above a 10% return. "Pillar 2" is a
global minimum effective tax of 15% on companies with over EUR
750 million in annual revenue.
Identifying the best way to "capture" giants like Amazon.com
, which despite its size operates on thin margins, will
require creativity.
"This is likely to be done through segmentation of business
lines specific to Amazon," Eurasia says.
A Reuters analysis found the G7's plan could hit certain
multinational firms hard while leaving others, including Amazon
and Alphabet barely touched.
While the global minimum rate is agreed on, the tax base and
allowable deductions are not, to say nothing of exceptions for
financial services or subsidized industries in developing
nations.
Additionally, the agreement requires countries to change
domestic laws and rewrite tax treaties to ensure reciprocity. In
the U.S. alone, Eurasia sees major opposition from Republicans,
keeping "Pillar 1" in limbo.
In the EU, Eurasia points out that changing tax laws will
require unanimous agreement by the bloc's 27 members, nearly a
third of which are low corporate tax nations like Ireland.
"(EU) Member states striving for an OECD deal—led by France,
Germany, Italy and Spain— are banking that Ireland will
ultimately be isolated in its opposition once the minimum tax
threshold is agreed," Eurasia says.
Still, they say an EU agreement could take until 2024.
With this many moving parts, it's no wonder investors seem
so far unconcerned by the prospect of higher global taxes!
(Lisa Mattackal)
*****
VALUE STILL HAS THE UPPER HAND VS GROWTH - GOLDMAN (1208
EDT/1608 GMT)
Goldman Sachs (GS), in a Portfolio Strategy Research note,
is taking a look at "What's next for Growth vs. Value?"
GS says in recent years, investors have grown accustomed to
Growth consistently outperforming Value. However, they note that
since November of 2020, the Russell 1000 Growth index has
underperformed the Value index by 20 percentage points.
That said, they also outpoint that the trade has stalled in the
past few weeks amid a pullback in interest rates.
In any event, according to GS, "history, valuations,
positioning, and economic deceleration indicate that most of the
rotation is behind us." However, GS macro forecasts calling for
strong GDP growth, and rising interest rates, point to further
Value near-term outperformance before Growth regains leadership
in late 2021 or early 2022.
GS believes fiscal and monetary policy uncertainty will
likely keep the trade unsettled for the time being. Longer-term,
"the outcome will depend on the whether the market believes
'secular stagnation' and 'lower for longer' still characterize
the macro environment and whether Growth stocks are able to
realize elevated current expectations."
(Terence Gabriel)
*****
EUROPE: NO SUPER THURSDAY, BUT A STEALTH RECORD HIGH (1150
EDT/1550 GMT)
It's fair to say this session didn't really keep its promise
in terms of market price action.
The STOXX 600 ends the day up an underwhelming 0.03% despite
both the ECB policy meeting and the biggest U.S. inflation burst
since 2008!
European stocks didn't move much on both despite the
continent's lenders getting a bit of a temporary boost on the
hopes of yields starting to rise again.
The banking index ended up 0.4%, well below telcos, up 1.2%.
That sector got a boost from BT, up 6.5%, after billionaire
Patrick Drahi took a 12% stake in the British operator.
Anyhow, volatility was limited today with less than 0.7%
between the lowest and the highest level of the day.
Speaking of which, few probably noticed but the pan-European
STOXX 600 pulled off a new record during the session, with its
455.76 high.
Granted that's just 0.1 points above the 455.66 level
reached on Tuesday, but still, technically, that's a new record
high, right?
(Julien Ponthus)
*****
BITCOIN HAS 58% CHANCE OF FALLING TO $10,000 IN 2021 (1130
EDT/1530 GMT)
Bitcoin has a 58% implied probability of dropping to $10,000
this year, according to US-Bookies.com, a U.S. betting web
portal, in a statement on Thursday. These odds have firmed
significantly since mid-April, when that probability was at 20%,
it added.
The world's largest cryptocurrency has also 33/1 odds, or a
2.9% probability that it will fall below $1,000 this year, up
from 250/1 odds or a 0.4% chance.
Bitcoin has been on a holding pattern, trading between
$35,000 to $38,000 the last few days. It fell as low as $31,025
early this week, its weakest level in three weeks. Since hitting
an all-time high of just under $65,000 in mid-April, bitcoin has
fallen 41%.
(Gertrude Chavez-Dreyfuss)
*****
WE'RE HAVING A HEATWAVE: CPI SHOWS INFLATION MERCURY RISING
(1031 EDT/1431 GMT)
The big, bad CPI report, which seems to have hogged all
conversation this week, finally arrived on Thursday bearing
tidings of hotter-than-expected inflation.
With over half of Americans vaccinated, the pent-up demand
beast is being unleashed and running up against tight supply,
and as expected, it's showing up on price tags.
The consumer price index, which measures prices
urban consumers pay for a basket of goods, rose by 0.6% in May,
according to the Labor Department.
The much-anticipated number was higher than the 0.4%
consensus, and appeared to fan the flames of prolonged
inflationary worries, despite the Fed's assurances that the
current wave of price spikes will subside in the near term.
"These inflation numbers are numbers we haven’t seen in
years, and they are likely to increase at least for a month or
two," says Peter Cardillo, chief market economist at Spartan
Capital Securities in New York. "The key is whether these
numbers will prove the Fed wrong, that inflation is structural
and not transitory."
"The guessing game goes on as to whether the Fed is going to
be right or wrong."
On a year-over-year basis, core CPI jumped by a
higher-than-expected 3.8%, rising further above the central
bank's average annual 2% inflation target.
The graphic below shows how major indicators stack up
against the Fed's preferred inflation yardstick, Core PCE:
And now let's pay a visit to our favorite curmudgeon, the
misery index.
While it takes different forms, for our purposes it's the
sum of annual headline CPI and the unemployment rate.
This chart shows the misery index has hit its highest level
since last July:
But if the jobless claims trend is any indication, the
unemployment rate is likely to recede in the coming months as
layoffs continue to fall.
A separate report from the Labor Department showed the
number of U.S. workers filing first-time applications for
unemployment benefits dropped last week to 376,000,
coming in just above the 370,000 analysts expected.
The downward trendline likely reflects the current worker
shortage seen in recent business surveys, which could in turn
force employers to hike wages to sweeten the pot, further
inflaming inflationary pressures.
On the other hand, unemployment beneficiaries are likely to
drop off in the coming weeks. Starting this Saturday, emergency
supplements are being cut off in at least 25 states with
Republican governors.
Ongoing claims, reported on a one-week lag, posted a
significant drop, falling to 3.499 million, retreating to about
double the numbers seen before COVID sent the economy into an
abrupt tailspin.
"Initial claims printing under 400,000 for the second week
in a row is clearly a positive sign of improvement," writes Sean
Bandazian, Investment Analyst for Cornerstone Wealth.
"Continuing claims are still abnormally elevated but given that
job openings are at all-time highs and enhanced unemployment
benefits are set to roll off shortly in many states, these
numbers should start to improve rapidly into the summer."
Major U.S. equity indexes are so far digesting the data
well. They are modestly green in mid-morning trading, with the
S&P 500 in new-high territory.
The small-cap Russell 2000, however, is slightly red.
(Stephen Culp)
*****
S&P 500 POPS TO NEW HIGH IN EARLY TRADE (1003 EDT/1403 GMT)
The S&P 500 index has thrust above its 4,238.04 May 7
intraday high in early trade, so far extending to 4,249.74. It
now remains to be seen if the benchmark index can end above its
4,232.60 record close also set on May 7.
This as the market appears to be shrugging off
hotter-than-expected inflation data.
Meanwhile, the U.S. 10-Year Treasury yield,
after hitting a high of nearly 1.54%, is now up just slightly,
at around 1.49%.
Of note, all major S&P 500 sectors are green with healthcare
posting the biggest percentage gain. Nevertheless, with
tech rising nearly 1%, and financials just
slightly positive, S&P 500 growth is outperforming value
. In fact, the IGX/IVX ratio is rising to its highest
level since early May.
Meanwhile, action in the Dow Transports may bear
close attention. After the economically sensitive index ended at
a 6-week low on Wednesday, it is posting a modest rise so far
today.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
EUROPEAN BANKS: GUESS WHERE THE BOOST CAME FROM? (0901
EDT/1301 GMT)
Well it sure didn't come from the ECB!
The European bank index didn't move that much after
the ECB policy statement but it did reach a session high, rising
about 1.5%, after data showed U.S. headline consumer prices
accelerated to 5%, the biggest year-over-year increase since
2008.
While Lagarde said euro zone inflation was likely to rise
more in the second half of 2021, it's expected to fade out, and
it's not even close in terms of scale.
Economists polled by Reuters expect headline inflation in
the euro zone to average 1.8% this year before easing back to
1.3% in 2022 and 1.5% in 2023.
Not exactly 5%...
Anyhow, here's the banking index rising after the U.S. CPI
which could fuel hopes of higher yields (and therefore profits)
for European lenders.
At the time of writing, it nevertheless seems enthusiasm for
the U.S. data is fading with the European banking index up only
1.2%.
(Julien Ponthus)
*****
U.S. STOCK FUTURES MIXED, YIELDS RISE AFTER DATA (0845
EDT/1245 GMT)
In the wake of latest reads on U.S. inflation, and jobless
claims, U.S. equity index futures are mixed, with just modest
changes.
May headline CPI month-over-month came in at 0.6% vs a 0.4%
estimate. Year-over-year the print was 5.0% vs a 4.7% estimate.
Initial jobless claims for the week ending June 5 were 376k
vs a 370k estimate.
Based on premarket futures action, the S&P 500 index
looks open around flat. That said, amid moribund
historical volatility, the SPX still appears ripe to rumble one
way or the other. With Wednesday's close, the SPX is on track
for its tightest weekly range as a percentage of the prior
week's close since mid-October 2017.
Meanwhile, the U.S. 10-Year Treasury yield,
after hitting a fresh 5-week low Wednesday at 1.4720%, has risen
to around 1.53%.
Here is your premarket snapshot:
(Terence Gabriel)
*****
FOR THURSDAY'S LIVE MARKET'S POSTS PRIOR TO 0845 EDT/1245
GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)