Market Strategist, Greater China
Summary: Tech stocks drove the market higher as S&P 500 rose 1% and Nasdaq 100 gained 1.3%. Nvidia surged 5.1% while Meta added 3%. Treasuries gained with yields lowering as investors found comfort in downward revisions of labor costs and ISM prices paid. The US dollar weakened against major currencies, while the Australian dollar outperformed. Crude oil rallied ahead of the OPEC meeting. ADP private sector employment data showed a larger-than-expected increase of 278k jobs. Caixin China Manufacturing PMI returned to expansion with a reading of 50.9.
The S&P 500 saw a 1% rise, while the Nasdaq 100 gained 1.3%, with big tech leading the equity market once again. Nvidia (NVDA:xnas) had a notable surge of 5.1% following a brief consolidation the previous day. Meta (META:xnas) advanced 3% and Amazon (AMZN:xnas) rose by 1.8%. The AI theme remained strong, with the information technology sector being the top performer in the S&P 500.
However, Salesforce (CRM) faced a setback as it plunged 4.7% due to lackluster revenue guidance, while Broadcom (AVGO:xnas) fell 1% in extended hours due to a downbeat sales outlook. On the other hand, Lululemon (LULU:xnas) had a remarkable jump of over 13% in extended trading after the athletic clothing retailer reported sales and earnings that surpassed estimates.
US Treasuries rallied, with yields lowering, as investors found reassurance in the downward revision of unit labor costs and the lower prices paid component in the ISM manufacturing data. Additionally, comments from Philadelphia Fed President Harker (voter), expressing his inclination for a pause in raising rates, provided support to the front end of the yield curve. The 2-year yield decreased by 6bps to 4.34%, while the 10-year yield shed 5bps to 3.60%.
In related news, the Treasury announced its consideration of postponing the actions of USD65 billion of 3-month and USD58 billion of 6-month bills previously scheduled for Monday, in case the debt-ceiling bill does not pass the Senate in time.
Mainland Chinese and Hong Kong equities extended their recovery as the Caixin China Manufacturing PMI surpassed expectations, rebounding into the expansion territory with a reading of 50.9. The CSI300 and Hang Seng Index initially surged by 0.9% and 1.3% respectively before losing momentum and settling nearly unchanged from the previous day. Turnover in the Hong Kong bourse improved to HKD 129 billion, but overall market sentiment remains subdued.
China Internet stocks rallied, with Meituan, JD.Com, and Baidu experiencing gains of approximately 2-3%. PetroChina (00857:xhkg) also saw a rise of 2.4%. However, Chinese airlines listed in Hong Kong faced a decline, with Air China (00753:xhkg) plummeting by 8.7% and China Southern (01055:xhkg) plunging by 6.2%. Both Hong Kong and Chinese property developers underperformed, with retreats of 1-5%.
The US dollar weakened versus other major currencies, with the Dollar Index (DXY) falling 0.7%. On the back of a rally in commodities (Bloomberg Commodity Index up 1.3%), the Australian dollar led the advance among the G10 currencies strengthening against the dollar, seeing AUDUSD climbing over 1% to 0.6577.
WTI crude oil jumped 2.9% to USD 70 ahead of the OPEC meeting this weekend. The unexpected bounce to the expansionary territory of the Caixin China manufacturing PMI also help support the rally in energy.
The US House of Representatives passed a bill to suspend the debt ceiling until January 2025 to avoid a default by the federal government. The deal struck by President Biden and House Speaker McCarthy was passed by a 314-117 vote, successfully getting bipartisan support, with149-71 for Republicans and 165-46 for Democrats. The bill is now moving to the Senate for a vote tentatively this Friday.
The unit labor costs increased 4.2% for Q1, which was sharply revised down from 6.3% previously reported and much below the consensus estimate of 6%, suggesting milder pressure from labor costs on inflation. The steep 9-point decline in the prices paid component of the ISM manufacturing survey provides additional comfort to a moderating trend in inflation. The headline ISM manufacturing index decreased to 46.9 (consensus 47.0) in May from 47.1 in April.
Ahead of the highly anticipated employment report, the ADP private sector employment data revealed a larger-than-expected change of 278k in May. Although slightly softer than the downward-revised 291k (previously reported as 296k), the figure still surpassed economists' estimates of 170k. Meanwhile, weekly initial jobless claims came in at 232k, lower than the consensus estimate of 235k.
According to a survey conducted by Bloomberg, economists anticipate that the US economy will add 195k jobs to non-farm payrolls in May, reflecting a smaller job addition compared to the 253k reported in April. The unemployment rate is expected to tick up to 3.5% in May from 3.4% in April. Furthermore, the consensus forecast for average hourly earnings growth in May stands at 0.3% M/M (vs 0.5% in April) and 4.4% Y/Y (vs 4.4% in April).
Caixin China Manufacturing PMI surpassed expectations, rising above the threshold of 50 to reach 50.9 in May. This private survey, conducted among 650 manufacturing companies across mainland China, indicated an expansion in manufacturing activity, in contrast to the deepening contraction indicated by the official National Bureau of Statistics manufacturing PMI released yesterday. However, the sub-components were less optimistic, as respondents' confidence in the 12-month outlook reached a 7-month low, and the employment sub-index declined.
Eurozone flash CPI exhibited a decline, sliding from 7.0% in April to 6.1% in May, falling short of the consensus forecasts of 6.3%. Adding to the subdued outlook, core CPI growth experienced a downturn from 5.6% in April to 5.3% in May, revealing a softer reading compared to the anticipated 5.5%. Moreover, recent inflation data emanating from Germany, France, and Spain, unveiled over the preceding two days, also displayed a weaker performance than originally expected.
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