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IS IT REFLATION TRADE AGAIN? (0848 GMT)
Today it’s all about Friday’s U.S. weaker than expected job
data, which pushes back the taper timing and boosts risk
appetite across the board.
“Whichever way you look at it, anyone who thought that the
Fed’s employment target might be in touching distance in the
foreseeable future has had a dampener on Friday,” Commerzbank
analysts say, recalling the maximum employment is part of the
Fed mandate.
“With policy remaining supportive, we continue to see
support for the reflation trade,” UBS analysts say.
They also suggest “picking companies with pricing power” as
cost pressure for corporates, possible rising wage growth, and
potential corporate tax increases are emerging.
But it’s not just that.
Commerzbank highlights three possible employment data
scenarios, which could change the Fed attitude about tapering:
. Friday’s data were weak just because the creation of new
jobs have merely been postponed, and the big boom will come in
May or June;
. the sectors benefitting from the pandemic are beginning to
suffer while the losers are not yet recovering;
. The recovery of the labour market might take much longer
than expected.
“More erratic the recovery on the U.S. labour market, the
longer the Fed will take to consider rate steps. And the longer
it will allow inflation to overshoot,” Commerzbank says.
The chart shows the S&P future reaction to U.S. data on
Friday.
(Stefano Rebaudo)
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WORLD STOCKS ROLLING HIGHER (0712 GMT)
An eventful weekend as a cyber attack forced the shutdown of
much of the Colonial pipeline -- the source of half the U.S.
East Coast's fuel supply. That's pushed up U.S. gasoline futures
2% while Brent crude futures are up almost 1%.
It raises the risk of gasoline shortages during the U.S.
summer driving season but also of another surge in headline
inflation, already seen on the rise in coming months.
Treasury yields are higher therefore, adding another two
basis to a late-Friday rebound off two-month lows.
But with U.S. 10-year yields some 20 bps off recent 14-month
highs, world stocks are rolling higher, hitting new record highs
and European and U.S. futures indicating a robust session ahead.
Stocks are merely extending gains chalked up on Friday when
a remarkably poor set of April jobs data allowed markets to push
back Fed rate hike bets and sent the dollar to two-month lows. A
perusal of the figures showed however, the huge miss maybe had
more to do with hiring difficulties rather than jobs not being
created.
In other news, pro-independence parties nabbed a majority of
seats in the Scottish parliament, setting the stage for a tussle
with the UK government over another independence referendum. The
pound seems unfazed though, staying above $1.40; eyes possibly
on the end of COVID-19 lockdowns, just a week away.
Also on the weekend, meme-inspired crypto Dogecoin lost a
third of its value after Elon Musk, the billionaire Tesla chief
called it a "hustle". He then proceeded to tweet that his SpaceX
venture would be accepting Dogecoin as payment.
The main action though is on Ether which rose above $4000,
hitting a record high for the third day straight.
Finally, earnings are winding down across the Atlantic but
some 75 companies, including several banks, will report in
Europe. Societe Generale leapt as much as 6.6% after it posted
net 814 million-euro profit.
Key developments that should provide more direction to
markets on Monday:
-New India coronavirus cases and deaths hold near record highs
- Earnings: British bakery chain Greggs raised its profit
outlook after after a recovery in sales; Dignity reported a 35%
jump in Q1 profit due as demand for funeral services rose
Euro zone Sentix index
Auctions: US 6-mth/3-mth bills
US earnings: Coty, Tyson Foods, Marriott, Occidental,
Europe earnings: Euronext, Centrica
(Sujata Rao)
*****
EUROPEAN SHARES SEEN UP ON HOPES FOR LOW RATES, UK ELECTION
IN FOCUS (0545 GMT)
Europeans stocks are seen on the rise mirroring Asian
stocks, which rose amid speculation that interest rates will
remain low due to receding inflationary pressure, while the
pound shoots up after Boris Johnson emerged stronger from local
elections.
Sterling is at its highest in more than two months
against the dollar after local elections, but worries about
Scottish independence could curb sterling's gains.
Scottish leader Nicola Sturgeon told PM Johnson that another
referendum on independence was inevitable after her party won a
resounding election victory.
In the meantime, Sadiq Khan from Britain's opposition Labour
Party was re-elected Mayor of London on Saturday, comfortably
defeating Shaun Bailey from Prime Minister Boris Johnson's
Conservative Party.
Oil and gas prices jumped after a cyber attack on a U.S.
pipeline operator unnerved markets.
U.S. nonfarm payrolls data on Friday showed jobs growth
unexpectedly slowed in April, which gave equities a lift.
(Joice Alves)
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International Airlines (IAG)
