LIVE MARKETS-Coming to a street near you: Chinese electric vehicles

* S&P, Nasdaq down; Dow barely green

* Consumer discretionary weakest of S&P sectors; energy
leads
gainers

* Dollar up, crude slips; gold weaker

* U.S. 10-year Treasury note yield ~1.625%

June 3 - 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

COMING TO A STREET NEAR YOU: CHINESE EVS (1400 ET/1800 GMT)

It's not just Tesla anymore, every major auto
manufacturer from Ford to Ferrari has either
unveiled electric vehicles or has plans to manufacture them.

Meanwhile, government investments into the EV sector are
ramping up. In the U.S. alone, President Joe Biden has proposed
packages that include $174 billion for electric vehicles and
charging stations, and higher consumer rebates.

However, according to analysts at the CRU Group, Chinese
auto companies could seize a considerable part of the western EV
market.

"It comes down to affordability and scale. The Chinese
(electric vehicle) market is several years ahead of Western
markets for both of these factors," CRU analyst George Heppel
told the Reuters Global Markets Forum https://refini.tv/3wT1QXb.

Morgan Stanley analysts predicted today that higher oil
prices and a fresh focus on climate change would accelerate EV
adoption. This should eventually push prices down.

According to CRU's Heppel, manufacturing capacity will be
the key barrier to EV sales over the next five to ten years, and
he foresees a supply crunch as Western manufacturers retool
their operations.

"There is potential for a Chinese firm to flood the European
or western market with cheap and readily available vehicles," he
said.

The Chinese EV sector, helped along by hefty government
subsidies, has been growing for many years. CRU forecasts
Chinese sales to rise to six million by 2025, representing
around 18.5% of total car sales.

And while governments might be loath to allow Chinese
dominance in the nascent EV market, Heppel notes that any
retaliation, such as higher U.S. tariffs on vehicle imports,
would also hurt trade with countries like Germany.

Meanwhile, CRU also expects a boom in demand in EV-related
metals including cobalt, lithium and nickel in the coming years.

"Chinese EVs are more likely to use cheaper, lower-range
(lithium iron phosphate) battery chemistries than western
brands," CRU analyst Alvaro Acosta said.

A report from The Information on Thursday said internal data
at Tesla showed the company's China orders were halved in May.

Among Chinese EV makers, CRU sees Geely Automobile Holdings
and BYD Auto Co as two well poised to gain market
share in the West. Both have hinted at plans for overseas
expansion.

(Lisa Mattackal)

*****

FIVE STEPS FORWARD, ONE STEP BACK: U.S. ECONOMY AT 93% OF
PRE-COVID 'NORMAL' (1305 EDT/1705 GMT)

While pandemic recession is currently in its 17th month
according to the National Bureau of Economic Research, the U.S.
economy's journey back to equanimity is picking up steam.

Global financial information firm Oxford Economics' (OE)
most recent Recovery Tracker shows a 1.2 percentage point (ppt)
jump - its strongest gain in seven weeks - to 93.3% of where it
was in January 2020, before efforts to contain COVID hobbled the
global economy.

OE follows 23 discrete metrics and groups them into six
baskets: financial, mobility, production, employment, demand,
and health.

In the week ended May 21 - the most recent data point
available - five out of six of those components rose.

"With 53% of the adult population fully vaccinated, the US
looks well positioned to reach herd immunity in the summer,
providing further impetus to a summer boom in activity," writes
Gregory Daco, chief U.S. economist at OE.

The mobility tracker rose 2.8 ppts to a 14-month high due to
a jump in transit ridership and gasoline demand hitting a
recovery high.

The health component gained 2 ppts on growing vaccinated
rates and a downward trend in new cases.

For Reuters' interactive graphic on the worldwide vaccine
rollout, click here https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

Demand improved by 1.1 ppts on increasing restaurant/hotel
traffic, and an uptick in credit card spending, while growing
steel/refinery output helped boost the production tracker by 1
ppt.

Fewer online searches for unemployment insurance and the
downward trend in jobless claims were behind the employment
component's 0.8 ppt gain.

The financial conditions tracker was the sole loser, giving
up 0.8 ppts on falling equity prices and rising volatility,
according to the note.

The chart below, courtesy of OE, shows a history of the
recovery tracker broken down by its six major components:

(Stephen Culp)

*****

FED WIND DOWN OF CREDIT FACILITY TO HURT RISK ASSETS,
SUGGESTS FASTER RATE HIKES – BOFA

The Federal Reserve’s announcement on Wednesday that it will
wind down its emergency corporate credit facility is “very
negative for risk assets” and suggests that the U.S. central
bank is closer to normalizing monetary policy than markets
expect, analysts at Bank of America said on Thursday.

The Fed said that sale of its corporate bond holdings will
be "gradual and orderly." The facility was created at the height
of the pandemic in 2020 to calm credit markets.

Wednesday’s announcement to unwind the credit facility “was
100% surprising,” BofA credit analysts including Hans Mikkelsen
said in a report.

The Fed’s facility holds only $5.21 billion corporate bonds
and $8.56 billion in exchange traded funds, which is “a drop in
the bucket” compared to the size of debt sales by companies,
BofA said.

However, “to us this is a symptom of the
post-coronavirus reality of getting back to normal much earlier
than expected, suggesting a much faster rate hiking cycle than
currently priced in the market,” the analysts said.

“It took very little Fed buying to stabilize the market last
year, it should take very little selling to convince investors
the tightening cycle is underway,” Bank of America said.

Many investors expect the Fed to announce plans to taper its
bond purchases at its Jackson Hole economic symposium in August,
with actual purchase reductions not likely until year-end or
early next year. An interest rate hike is not expected until at
least late 2022, according to trading in eurodollar futures.

(Karen Brettell)

*****

HEAT WAVE: HOT DATA RAISES FED POLICY ANXIETIES AHEAD OF
JOBS REPORT (1110 EDT/1510 GMT)

A deluge of data unleashed on Thursday showed a tighter,
hotter labor market and a services sector expanding at a record
pace as freshly vaccinated consumers toss off their masks and
open their wallets.

And some market participants viewed the rising mercury as a
harbinger of Fed tightening, which is sending stocks lower.

The number of U.S. workers filing first-time applications
for unemployment benefits dropped to 385,000 last
week, according to the Labor Department, dipping below the
400,000 mark for the first time since mandated lockdowns caused
the economy to hemorrhage more than 22 million jobs.

The number was a bit rosier than analyst estimates.

While the data falls outside the survey period for the May
employment report due on Friday, the downward trajectory of
claims bodes well for a healing labor market.

Still, for context, more folks filed initial claims last
week than live in Cleveland.

"The decline in new claims – down by nearly half since early
April – shows that layoffs are receding, while the more stubborn
level of continuing claims reminds us that a full recovery of
jobs lost during the pandemic will be a more uneven process,"
writes Nancy Vanden Houten, lead U.S. economist at Oxford
Economics.

Indeed, ongoing claims, reported on a one-week
lag, unexpectedly increased to 3.771 million.

Private employers added 978,000 workers to their payrolls in
May according to payrolls processor ADP.

The number blew past consensus and came in well above the
600,000 private job adds analysts expect the Labor Department's
employment report to show on Friday.

"Goods-producing payrolls rose 128K," outpoints Rubeela
Farooqi, chief U.S. economist at High Frequency Economics.
"Service-producing payrolls were much stronger, up 850K."

That last bit is good news for the customer-facing services
sector, which bore the brunt of job losses in the wake up
mandated shutdowns.

The graphic below shows the ADP Employment Index and how
accurately (or not) it predicts the Labor Department's private
payrolls data:

Speaking of the customer-facing services sector, it grew at
its fastest pace on record last month.

The Institute for Supply Management's (ISM)
non-manufacturing purchasing manager's index (PMI)
increased to a reading of 64 in May, a point higher than
anticipated.

A PMI number over 50 indicates increased activity over the
previous month.

The number was driven by upticks in business activity and
new orders, along with a potentially worrisome jump in prices
paid to their highest level since September 2005 as tight supply
continued to drive costs higher.

But employment expansion decelerated, evidence of labor
scarcity.

Supply and labor shortages remain the chief concerns among
the survey's respondents:

"Material shortages, increased prices and qualified
personnel shortages are becoming a much larger concern," (real
estate/leasing).

"Stimulus money, increased vaccinations, increased dining
capacity and pent-up demand are driving a fast recovery for
dine-in restaurants — and all consumer segments, it seems —
resulting in labor shortages and supply chain gaps,"
(accommodation/food services).

Global information firm IHS Markit also released its final
tank on May services PMI, coming in at 68.7.

ISM and Markit PMIs differ in the weight they give to
subcomponents such as new orders and employment.

Circling back to the labor market, a report from executive
outplacement firm Challenger, Gray and Christmas showed 24,586
layoffs were announced by U.S. companies last
month.

While a bit higher than the April number, it's 93.8% lower
than May 2020.

So far this year, the sectors seeing the steepest planned
job cuts are aerospace/defense, telecom, services, retail and
entertainment/leisure.

Still, the tight labor market is proving bothersome.

"Many employers, especially those hit hard during the
pandemic...are having a difficult time finding workers," says
Andrew Challenger, senior vice president at Challenger Gray.
"Many are offering signing bonuses or higher wages to attract
workers."

Finally, the Commerce Department released its second stab at
first-quarter labor costs and productivity
.

The big surprise was the 1.7% quarterly annualized increase
in labor costs, a stark reversal from the 0.3% decline
originally reported, the gain driven by a 7.2% jump in
compensation growth as employers sweeten to ante to keep workers
on the job.

Nonfarm productivity growth was upwardly revised to 5.5%
from 5.4%.

Wall Street seems to be following several directionless
sessions with an impulse to head south on fears that the heating
economy might prompt the Federal Reserve to tighten its dovish
policy sooner than expected.

All three major U.S. stock indexes were red, with tech
weighing heaviest on the S&P 500.

(Stephen Culp)

*****

GOING GREEN (1015 EDT/1415 GMT)

With its abundance of commodity producers and clutch of
authoritarian regimes, investors with an environmental, social
and governance (ESG) focus have their work cut out in emerging
markets.

They're still thinking about it though.

A total of 65% of more than 100 respondents to BofA's first
ever survey of ESG for emerging market investors said they paid
attention to the topic, but had flexibility in decision-making.

Only 6% of investors said they paid little or no attention
to ESG, while 21% reported strong adherence to ESG guidelines.

Risk management and client demands were the main reason
cited by respondents as to why they were looking at the issue.

But the survey suggested there was quite a way to go.

While 40% of those surveyed are integrating ESG into their
analysis, another 28% use internal teams and third party ESG
scores. Only 10% reported having separate ESG teams. Almost 20%
of investors are still working out what to do and are not
currently incorporating ESG into their analysis.

In contrast to a similar survey by BofA for European
investors, almost a third of EM investors highlight engagement
with issuers over sector or issuer exclusions. In Europe,
exclusions by sector tend to dominate, BofA's other survey
found.

Perhaps unsurprisingly, climate change, corporate governance
and green energy were the top areas investors said they'd focus
on for 2021. In contrast, social issues and community engagement
were far less of a focus.

(Tom Arnold)

*****

FEATURE FLOP? AMC SEEN AS SIGN OF MARKET FROTH (0951
EDT/1351 GMT)

The wild ride for retail investor darling AMC Entertainment
Holdings Inc shares - which are dropping on Thursday
after nearly doubling a day ago - has been occurring as the
major U.S. stock indexes had barely budged at the start of the
week, with investors more attuned to data on the labor market
for cues about stocks more broadly.

But the outsized moves for AMC, GameStop and other
favorites on social media forums such as Reddit's WallStreetBets
may be more than a sideshow for the broad market.

"We’re not sure enough people realize that the recent action
in AMC is a clear sign that the froth in the marketplace is
still alive and well," Matt Maley, chief market strategist at
Miller Tabak, said in a note.

While AMC is "more overvalued than most other assets," Maley
writes that the massive central bank stimulus has left many
assets "well above levels that would be justified by their
underlying fundamentals."

Michael O'Rourke, chief market strategist at JonesTrading,
also sees the link between AMC and central banks.

"Federal Reserve policy has fostered an environment where
the U.S. equity market resembles a high stakes game of fantasy
sports (betting)," O'Rourke writes in a note. "AMC Entertainment
is the embodiment of the insanity."

Adds O'Rourke: "While AMC Entertainment is a re-opening play
and clearly benefits from vaccinations, vaccinations do not
propel a business to 20x its pre-pandemic peak value, excess
liquidity does."

(Lewis Krauskopf)

*****

U.S. FUTURES POINT TO LOWER OPEN AFTER LABOR MARKET DATA
(0915 EDT/1315 GMT)

U.S. stocks were poised for a lower open on Thursday
following two sessions of listless trading, although futures
pared some declines in the wake of improving labor market data.

Weekly initial jobless claims dropped below 400,000 for the
first time since the coronavirus pandemic began over a year ago,
coming in at 385,000 versus expectations of 390,000 claims. A
separate report from ADP showed private payrolls increased by
978,000 in May, well above the 650,000 forecast.

While investors have been keenly focused on inflation and
clues on the Federal Reserve's policy path, including tapering
asset purchases, the central bank announced late Wednesday it
will begin unwinding its corporate bond and exchange traded fund
holdings it had acquired through an emergency lending facility
at the height of the pandemic, which a Fed offical said was
unrelated to monetary policy.

Below is your premarket snapshot:

(Chuck Mikolajczak)

*****

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