June 5, 2023 - Fundamental Reminder

☆ 09:45 CNY Caixin Services PMI (MAY)

☆ 10:00 The State Council Information Office Holds Regular Briefing

☆ 16:00 EUR Services PMI Final (MAY)

☆ 21:45 USD Markit Services PMI Final (MAY)

☆ 22:00 USD ISM Non-Manufacturing PMI (MAY) & USD Factory Orders MoM (APR) & USD Durable Goods Orders MoM (APR)

Market Overview

Review of Global Market Trend

 Data on Friday showed the U.S. economy added much more jobs than expected in May, but the unemployment rate rose rather than fell and growth in average hourly earnings slowed. Still, markets are pricing in an increased probability of a Fed rate hike in July. The dollar index continued to rally after the data, rising as high as 104.1 before closing up 0.49 per cent at 104.05.

U.S. Treasury yields climbed after the non-farm data, with the 10-year Treasury yield briefly pushing toward 3.7%, up more than 10 basis points on the day from around 3.6% to around 3.69%; The yield on the two-year Treasury note, which is more sensitive to the interest-rate outlook, rose more than 18 basis points on the day to close near 4.51%.

Spot gold continued to fall after the non-farm report, falling as low as $1947.6 per ounce, down more than $30 from the session's high and giving up most of last week's gains. It closed down 1.49% at $1948.1 per ounce, its biggest daily decline in four weeks, but still recorded a small weekly gain, halting a three-week losing streak. Spot silver fell as low as $23.58 an ounce before closing down 1.08 percent at $23.62 an ounce.

Crude oil got a boost from the expansion of Chinese manufacturing activity, U.S. non-farm employment growth and the possibility of further production cuts announced at the OPEC + meeting. WTI crude rose as high as $72.21 a barrel before closing up 2.45% at $71.83. Brent crude rose as high as $76.46 a barrel before closing up 2.52 percent at $76.19 a barrel. Despite two days of gains, the weekly line still recorded the first decline after two weeks of gains.

U.S. stocks closed higher across the board, with the Dow up 2.12 percent, the S&P 500 up 1.41 percent and the Nasdaq up 1.07 percent. Faraday Future closed up about 9.5%, XPeng Motor gained about 5%, General Motors gained about 3.8% and Tesla gained about 3%.

Major European stock indexes continued to rebound, with Germany's DAX30 up 1.27 percent. Britain's FTSE 100 closed up 1.54%; France's CAC40 index closed up 1.87 percent; The Stoxx Europe 50 index closed up 1.53%; Spain's IBEX35 index closed up 1.67 percent; Italy's FTSE MIB closed up 1.84%.   

Market Focus

1. OPEC+ Meeting: The voluntary cuts, first agreed in April, were extended from the end of 2023 to the end of next year. Saudi Arabia made a 1 million b/d cut in July on top of the voluntary cuts and said they could be extended if necessary. The U.A.E. added 200,000 b/d to its 2024 production quota. Oil prices opened 3 per cent higher this morning after quotas for some West African countries were lowered, OPEC + production in 2024 was cut by about 1.4m b/d from its current level to 40.46m b/d.

2. A small plane crashes in Washington, US. Us military aircraft take off and there is a sonic boom.

3. Vietnam's trade ministry has asked government agencies to increase coal and natural gas production to ease power shortages.

4. Australian Prime Minister's First visit to Vietnam: We hope that the bilateral relations will be upgraded to a comprehensive strategic partnership as soon as possible.

5. Preliminary findings of the train derails in India: Changes in the electronic interlock device caused the accident.

Geopolitical Situation

Institutional Perspective

01

Goldman Sachs

【Goldman Sachs Banker Who Let Solomon Wear Lululemon Win IPO Underwriting Rights to Retire】

On June 4 -- Goldman Sachs (GS.N) banker Kathy Elsesser is retiring from her senior position at the Wall Street firm after more than 30 years with the firm. Elsesser, 56, is understood to be the chairman of the bank's consumer retail and health care investment banking group and the driving force behind the firm's modern investment banking saga, having led teams - including David Solomon, then head of investment banking and now chief executive officer - to -in Lululemon garb to win the sportswear retailer's 2007 IPO underwriting mandate. The news that Elsesser will retire from Goldman Sachs Partners was disclosed by a memo sent to employees this week. She will become a senior adviser responsible for dealing with some of Goldman's clients as well as various teams within Goldman, the memo showed. 

02

SOCIETE GENERALE

【Societe Generale: 10-Year U.S. and German Treasury Spreads Expected to Narrow】

On June 2, Societe Generale interest rate strategists wrote in a report that there is room for a narrowing of the 10-year U.S. Treasury/German bond yield spread, which is consistent with the usual trend around the last Fed rate hike. They said, “Eurozone core inflation has yet to plummet, while the ECB's stance is less restrictive than the Fed's.” They said, “This has helped narrow the spread between U.S. Treasuries and U.S. Treasuries.” The yield spread between 10-year U.S. Treasuries and 10-year German Bonds currently stands at 135 basis points, with the 10-year U.S. Treasury yielding about 3.62% and the 10-year German Bond yielding about 2.27%, according to Tradeweb.

03

MUFG

【MUFJ: Fed expected to skip no rate hike in June】

On June 2, George Goncalves, head of U.S. macro strategy at Mitsubishi UFJ Financial Group, said tonight's nonfarm payrolls additions will not be enough on their own to raise the market's likelihood of a 25 basis point rate hike in June to a high enough level, but will get the market talking about how the Fed will convey the message of skipping a rate hike in June. Overall, as long as the remaining data to be released is not off track, the Fed will likely adopt a hawkish skip strategy of not raising rates in June, but implying that this does not mean they are ending the rate hike cycle and they may use the dot plot to convey this message if and when terminal levels rise.