Market Talk – June 1, 2023

ASIA:

China’s factory activity contracted at a faster rate than expected in May, signaling weakening demand and adding pressure on policymakers to support the country’s uneven economic recovery. The official manufacturing purchasing managers’ index (PMI) fell to a five-month low of 48.8, below the 50-point threshold that indicates expansion, and lower than the forecasted increase to 49.4. Additionally, the service sector activity expanded at a slower pace in May, with the official non-manufacturing PMI declining to 54.5 from 56.4. These disappointing readings caused Asian financial markets to decline, with the yuan, Australian dollar, and New Zealand dollar weakening, and regional stocks experiencing sharp falls. The PMI subindexes for May highlighted a contraction in factory output and a decline in new orders, including new exports, for the second consecutive month.

The major Asian stock markets had a mixed day today:

• NIKKEI 225 increased 260.13 points or 0.84% to 31,148.01
• Shanghai increased 0.07 points or 0.00% to 3,204.63
• Hang Seng decreased 17.36 points or -0.10% to 18,216.91
• ASX 200 increased 19.50 points or 0.27% to 7,110.80
• Kospi decreased 7.95 points or -0.31% to 2,569.17
• SENSEX decreased 193.70 points or -0.31% to 62,428.54
• Nifty50 decreased 46.65 points or -0.25% to 18,487.75

The major Asian currency markets had a mixed day today:

• AUDUSD increased 0.00666 or 1.02% to 0.65666
• NZDUSD increased 0.00455 or 0.76% to 0.60665
• USDJPY decreased 0.446 or -0.32% to 138.894
• USDCNY decreased 0.00953 or -0.13% to 7.10857

Precious Metals:

• Gold increased 17.04 USD/t oz. or 0.87% to 1,979.34
• Silver increased 0.382 USD/t. oz or 1.62% to 23.859

Some economic news from last night:

China:

Caixin Manufacturing PMI (May) increased from 49.5 to 50.9

Japan:

Capital Spending (YoY) (Q1) increased from 7.7% to 11.0%

Australia:

Private New Capital Expenditure (QoQ) (Q1) decreased from 3.0% to 2.4%

Retail Sales (MoM) decreased from 0.4% to 0.0%

Some economic news from today:

India:

Nikkei S&P Global Manufacturing PMI (May) increased from 57.2 to 58.7

Hong Kong:

Retail Sales (YoY) (Apr) decreased from 40.9% to 15.0%

Australia:

Commodity Prices (YoY) decreased from -19.2% to -22.2%

EUROPE/EMEA:

According to Deutsche Bank’s annual default study, a wave of debt defaults is imminent in the United States and Europe. This is attributed in part to the fastest monetary tightening cycle in 15 years. The study predicts that default rates will reach their peak in the fourth quarter of next year. Deutsche Bank forecasts peak default rates of 9% for U.S. high-yield debt, 11.3% for U.S. loans, 4.4% for European high-yield bonds, and 7.3% for European loans. Aggressive interest rate hikes by major central banks, including the U.S. Federal Reserve, have increased the risks of a global recession. Germany, the largest economy in Europe, has already entered a recession. European firms are seen to have lower default risks compared to their U.S. counterparts due to a higher percentage of better-rated bonds, greater fiscal support in Europe, and lower debt levels in high-growth sectors like technology. However, the real estate sector in Europe is under significant pressure, accounting for more than half of all European high-yield distressed debt.

The major Europe stock markets had a green day today:

• CAC 40 increased 38.73 points or 0.55% to 7,137.43
• FTSE 100 increased 44.13 points or 0.59% to 7,490.27
• DAX 30 increased 189.64 points or 1.21% to 15,853.66

The major Europe currency markets had a mixed day today:

• EURUSD increased 0.0052 or 0.49% to 1.07400
• GBPUSD increased 0.0089 or 0.72% to 1.25260
• USDCHF decreased 0.00227 or -0.25% to 0.90823

Some economic news from Europe today:

Swiss:

procure.ch PMI (May) decreased from 45.3 to 43.2

Spain:

Spanish Manufacturing PMI (May) decreased from 49.0 to 48.4

France:

French Manufacturing PMI (May) increased from 45.6 to 45.7

Germany:

German Manufacturing PMI (May) decreased from 44.5 to 43.2

German Retail Sales (MoM) (Apr) increased from -2.4% to 0.8%

Italy:

Italian Manufacturing PMI (May) decreased from 46.8 to 45.9

Euro Zone:

Manufacturing PMI (May) decreased from 45.8 to 44.8

Core CPI (YoY) decreased from 5.6% to 5.3%

CPI (MoM) decreased from 0.6% to 0.0%

CPI (YoY) (May) decreased from 7.0% to 6.1%

Unemployment Rate (Apr) decreased from 6.6% to 6.5%

UK:

Manufacturing PMI (May) decreased from 47.8 to 47.1

Nationwide HPI (YoY) (May) decreased from -2.7% to -3.4%

Nationwide HPI (MoM) (May) decreased from 0.4% to -0.1%

US/AMERICAS:

Canada’s economy grew at an annualized rate of 3.1% in the first quarter, beating expectations, with household spending rising 1.5% for goods and 1.3% for services. The growth slowed compared to the previous quarter, but it was still better than expected. S&P Global predicts that the second quarter will see a dip in the economy, but resilience will persist. The Bank of Canada will make their next announcement on June 7. According to Reuters, analysts predict a 40% chance of a hike at the next meeting, followed by an increase of 25 bp by September.

US Market Closings:

• Dow advanced 153.3 points or 0.47% to 33,061.57
• S&P 500 advanced 165.7 points or 1.28% to 13,100.98
• Nasdaq advanced 165.7 points or 1.28% to 13,100.98
• Russell 2000 advanced 18.29 points or 1.05% to 1,767.94

Canada Market Closings:

• TSX Composite advanced 100.01 points or  0.51% to 19,672.25
• TSX 60 advanced 5.36 points or 0.46% to 1,182.3

Brazil Market Closing:

• Bovespa advanced 2,229.59 points or 2.06% to 110,564.66

ENERGY:

The oil markets had a mixed day today:

• Crude Oil increased 2.498 USD/BBL or 3.67% to 70.588
• Brent increased 1.981 USD/BBL or 2.73% to 74.581
• Natural gas decreased 0.1001 USD/MMBtu or -4.42% to 2.1659
• Gasoline increased 0.0215 USD/GAL or 0.88% to 2.4653
• Heating oil increased 0.0655 USD/GAL or 2.91% to 2.3164

The above data was collected around 11:38 EST on Thursday

• Top commodity gainers: Crude Oil (3.67%), Cotton (3.74%), Potatoes (8.91%) and Cheese (6.40%)
• Top commodity losers: Natural Gas (-4.42%), Milk (-4.33%), Rubber (-1.05%) and Soda Ash (-1.89 %)

The above data was collected around 11:44 EST Thursday.

BONDS:

Japan 0.421% (-1bp), US 2’s 4.35% (-0.039%), US 10’s 3.6083% (-2.87bps); US 30’s 3.84% (-0.018%), Bunds 2.259% (-1bp), France 2.825% (-2.3bp), Italy 4.005% (-8.8bp), Turkey 10.23% (+0bp), Greece 3.74% (-4.4bp), Portugal 2.985% (-3.3bp); Spain 3.298% (-4bp) and UK Gilts 4.126% (-5.3bp).          

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